Atlantic Green Chemicals Site Location Study in Iceland Indriði Waage

December 2011

BIFRÖST UNIVERSITY

Master’s Thesis- International Business

Atlantic Green Chemicals Site location study in Iceland Indriði Waage

Supervisor Andri Ottesen

Executive Summary

About us Atlantic Green Chemicals (AGC) is a company that is formed to execute green and environmental chemical manufacturing projects, using renewable raw material as a feed stock for its products and by using renewable energy source in the production of its products. This newly constructed firm is looking for a possible industry site to build a factory and has intended the location for its first plant to be in Western Europe. There are a few interesting sites identified as suitable for a factory of this caliber both in Iceland and other Western European countries. In Iceland’s case four sites are considered most attractive in regarding satisfying energy source. Those are Bjarnarflag in Norðurþing municipal on the north-east coast, the industrial site at Grundartangi in Hvalfjöður, a new industrial site at Helguvík in Reykjanes peninsular and in Djúpivogur municipal on the east coast.

AGC is a spin-off company from the research and consulting firm Efnaferli ehf (Icelandic Process Development, IPD) with the purpose to develop implement and execute projects on the field of “green” chemical industries in Iceland and/or elsewhere. IPD was formed in 1997 to research various chemical processes that would be suitable for medium scale chemical plant productions. Gunnlaugur Friðbjarnarson: is the founder and key inventor of Icelandic Process Development Ltd. Since 2007 IPD has operated a sophisticated fully staffed pilot plant in Reykjavik for the proof of processes and the verification and characterization of utilities, energy, and specific consumption parameters. This pilot plant is well suited to develop and test various kinds of catalysts and process conditions, by using hydrogen and a variety of biomass feed stock. Rannis (Icelandic Research Council) granted IPD a 3 years support in 2008 for testing and catalyst’s developments. One of the results from operating the pilot plant resulted in a newly achieved process patent, registered in Iceland in January 2011. This patent has already been filed and is pending internationally (PCT). The patent involves processes using glycerin and other sugars to produce renewable chemicals, such as glycerin, which delivers mainly and with high selectivity propylene glycol and ethylene glycol, valuable and in high demand commodities. This process is considered more efficient and environmentally friendly than prevailing glycols processes based on petrochemicals sources.

About the technology: The technology implemented for this project will be the proprietary and newly patented process of IPD and licensed to AGC. Process based on this technology reduces the emission of greenhouse effect generating carbon dioxide compared to conventional production methods that uses petrochemicals as feedstock. Not only is the project economical feasible, it also has environmental benefits that both have market value that can lead to cost effective funding from EU-green grant programs or green-tech. investment funds.

Base Case The first steps in raising a factory capable of producing 30.000 tons per annum of products in an industrial scale plant in Iceland. Within two years’ time plan is to double the size of that factory again to the production capabilities of 65.000 tons per annum, and after five years from initial first step was taken the final expansion would take place and the production capability will reach 125.000 tons per annum. The engineering, procurement and construction cost for the overall glycerin purification and conversion plant is estimated to be around EUR 15, 3 million. This total installed cost has an estimated accuracy of -10/+35 % according to IPD estimation.

The project is based on three phases:

Phase I: Small scale industrial plant Investment: EUR 17.8 million Total production at full capacity: 30.000 tons Total sales value -: EUR 33,1 million Phase II: Operational in year 3 Additional Investment: EUR 15 million Additional production at full capacity: 35.000 tons Total sales value: EUR 71,7 million Phase III: Operational in year 5 Additional Investment: EUR 19,9 million Additional production at full capacity: 60.000 tons Total sales value: EUR 137.9 million

The total investment for Phase I, Phase II and Phase III is EUR 52,7 million, expected to produce 125.000 MT of products with a total sales value of EUR 137.9 million.

Results and conclusion AGC plant converts glycerin - a by-product from bio diesel production into propylene and ethylene glycols with chemical processes that rely on use of steam and hydrogen. This process in based on 9 years research and verified technology demonstration that has been patented and is one of a kind worldwide. This process is highly profitable due to two developments: Glycerin prices have dropped drastically due to EU tax policies that require use bio fuel for transport of 5,75% of total transportation fuels used in EU. This proportion will increase to 10% by 2020. Hence, there is a foreseeable supply of Glycerin as bi-product from bio diesel production at affordable prices over the next ten years or so. However, the products propylene and ethylene glycols have until now been derivatives from oil production, made in oil refineries and have to the large extent followed the world price of oil. Due to EU policies products that are made from renewable and waste recourse have priority over such products and can even be sold at premium over equivalent products, this should apply to AGC products.

Capex and Opex model was constructed for all the four cases. The dependent variables were assumed the same for all the four cases. These were labor cost, construction cost, raw material cost, income from products sold abroad, and foreign marketing, logistics and storage cost. The independent variables were case specific as they were different for each case. These were electricity cost for electrolyzing hydrogen or alternatively cost of purchasing hydrogen as a bi-product or cost of abstracting hydrogen from non-condensable gases at geothermal sites. Cost of steam and logistics and storage cost. Several cost assumption were made based on references from reputable sources and NPV and IRR were calculated for each site. The required WACC is set at 15% for these four cases. The result from these calculations are that Bjarnarflag/Helguvík that assumes abstraction of hydrogen from non-condensable gases and non-transmission tariffs of electricity scores the highest with 98,4% IRR and NPV EUR 96.921.861. The second highest score is at the Grundartangi site where it is assumed that hydrogen can be purchased from Proposed Sodium Chloride factory as a bi-product the IRR for that site is 93.2% and the NPV is EUR 95.347.804. The third site option is Helguvík where AGC is going to buy waste heat as steam from the Icelandic Silica Factory. This option yields IRR of 86, 2% and NPV of EUR 89.427.385. The forth option is Djúpivogur which were storage tanks and buildings could be donated. This option yields IRR of 74, 3% and NPV of EUR 68.844.894. Even though all sites obviously yield acceptable outcomes which is 50% IRR (the higher end of accuracy limit in addition to 15% WAAC) , one shall keep in mind the accuracy of this study is -10% and + 35%. It is not unusual that total cost for erecting a new chemical plant can overrun up to 40% thus large contingency I need or more studies, bids and calculations are clearly needed to tighten the outcome accuracy figures. Confirmed bids and detailed estimates will have to be conducted and analyses. A special study has to be made what is the most economical method of abstracting hydrogen from non-condensable geothermal gases at Bjarnarflag. Kemira, the Sodium Chloride factory has not given confirmed answer if they will build their plant in Iceland or elsewhere. No formal price negotiations have been conducted and the purchasing price of hydrogen is at this stage only an educated guess and best estimate. Helguvík case is the one that is the best developed at this time and these costs there are most researched. MOU has already been signed with the Icelandic Silica Corporation with some steam price and quantity indications. Price of electricity is based on two contracts of equivalent quantity from HS Orka. A premise has already been secured at Helguvík Harbor and Environmental Impact Assessment is expected to pass in February 2012. Furthermore, option B was studied for Helguvík in case contracts with ISC would fall through, and that was to have the factory based next to Reykjanes Geothermal Power Plant where there is abundance of steam and because of co-locations with the power plant no transmission tariff would apply. However storage facility and sea logistics would still remain in Helguvík. This option yielded almost same outcome as option A, in spite of more transportation and somewhat more storage capacity.

The recommendations from this study are as follows.

a) Continue developing the case for Helguvík as the primary option. The outcome meets required cut off rate above of 50% IRR. The costs figures have the least inaccuracy out of these four cases. The company need to get a firm budget quotes and perform basic engineering to further tighten of cost estimates. The plant is next to largest urban area where access to skilled labor, mostly mechanics and tradesmen, is guaranteed. The plant is only 5 minutes from the International Airport which is very important as financing of the plant is planned to be largely from international sources. Furthermore, the company plans to sell its alcoholic products as a fuel blend additive, which is about 80% distributed out of Reykjavik. A lot of oxygen is a bi-product of the electrolysis process. The Reykjanes area is probably the best locations for selling such gases, especially the airport that might become a customer, but also local fish farmers. b) Economical and technical feasibility study should be conducted at the earliest convince on the optimal methodology and technical verification on how to abstract hydrogen from non-condensable geothermal gases at proposed new Bjarnarflag power plant. AGC should apply for a grant for this study from National Power Company, Ministry of Industry or the Energy fund. AGC should furthermore follow closely

development in H2S cleaning systems for the non-condensable gases at the proposed

Bjarnarflag geothermal power plant. It is possible that for cleaning of H2S the National Power Company uses so called Klaus method would be used that hydrocracks the

hydrogen out of the H2S while solidifying the sulfur. This process could yield hydrogen that can be used for industrial processes. c) AGC should follow closely developments if Kemira is going to build plant in Grundartangi and have hydrogen available as a bi-product. The company should engage in price negotiation and be ready to move their plant to Grundartangi if prices are too good to miss. AGC should furthermore work with Kemira in developing option to abstraction steam for their production, which could come through steam boiler from the Elkem Ferro-silica plant.

Team and partners Dr. Andri Ottesen, Chief Executive Officer

Magnús Magnússon, Chief Engineer

Gunnlaugur Friðbjarnarson, founder and key inventor of Icelandic Process Development Ltd

About Project Preparation The current owners of the project are seeking interested investors to participate. The next steps in the project are to form a project preparation group of specialists who further design, negotiate and form contractual basis about utilities, raw material supplies and site specifics and capital costs. Furthermore, to gather and collect information and data with the objective to enable the decision for project’s Phase I initiation before end of 2012. An important task of the project preparation is to start working on the documentation delivery for the official permitting processing of the project. It is important to be able to start this soon as the authorization processing in Iceland normally takes 6-10 months. The cost to reach this objective is estimated at EUR 1.000.000. Simultaneously AGC would seek strategic partners for the operation of the project as well as potential investors for the second phase.

Abstract Chemical industry has been a very important industry in the western hemisphere for the last century or so. Today the chemical industry in Iceland is a relatively new concept and has evolved very slowly in recent time mostly because the basic infrastructure for industry of that caliber is in many parts not progressing as fast it has the potential to do. In Iceland there is an opportunity to move the chemical industry into new highs with available low energy prices, feasible land, good harbor-and road connections, and with growingly educated work force. This research provides a financial valuation of raising a glycerin to glycol factory in four locations in Iceland. These locations are Helguvík, Grundartangi, Bjarnarflag and Djúpivogur. Each location has something unique to offer in comparison so valuation is bound to reflect different opportunities. A standard profitability assessment method with 10 year operational time period provides a very positive net present value and internal rate of return at each location.

Table of Contents

1. Introduction ...... 1 Research Question ...... 2 Description of the research ...... 2 The objective of the research ...... 2 Research Method...... 3 Limitations ...... 3

2. AGC ...... 4 About AGC ...... 4 The Officers at AGC ...... 5 International partners ...... 7 The project ...... 8 About the Cost and time ...... 10 About the Risks ...... 10 Locations Risk ...... 10 Operational Risk ...... 11 Permitting Risk ...... 11 Technological and Scale Up Risks ...... 11 Project Cost Risk ...... 12 About the technology: ...... 12 The process ...... 13 The products ...... 14 About product application ...... 16 Market prices of raw material and products ...... 16

3. Literature view ...... 17 PESTEL ...... 17 Political environment ...... 18 Economic environment ...... 19 Social-cultural environment ...... 19 Technical environment ...... 19 Natural environment ...... 20 Legal environment...... 20 NPV ...... 20 IRR ...... 21

4. Framework of this analysis ...... 22 Similar cost between locations ...... 22 Currency ...... 22 Employees ...... 22 Marketing cost, license fee and cost of catalyst ...... 24 Various fixed cost ...... 24 Different between locations ...... 25 Investment cost ...... 25 Finance and funding ...... 26 Transport ...... 26 Energy ...... 28 Key companies in energy production sector ...... 30 Key companies in energy distribution sector ...... 31

5. Helguvík ...... 38 Investment in Helguvík ...... 39 Pro forma financials ...... 40 Summary of projected financial return ...... 41 Profitability analyses ...... 42

6. Grundartangi ...... 44 Investment in Grundartangi ...... 45 Pro forma financials ...... 46 Summary of projected financial return ...... 48 Profitability analyses ...... 50

7. Bjarnarflag ...... 51 Investment in Bjarnarflag ...... 53 Pro forma financials ...... 54 Summary of projected financial return ...... 56 Profitability analyses ...... 58

8. Djúpivogur ...... 59 Harbor facility: ...... 59 Investment in Djúpivogur ...... 59 Pro forma financials ...... 60 Summary of projected financial return ...... 61 Profitability analyses ...... 63

9. Conclusions ...... 64

10. Bibliography ...... 65

Appendix – Helguvík...... 69 Fundamentals ...... 69 Profit and loss ...... 75 Cash flow and equity ...... 78 Tanks building estimates ...... 80

Appendix – Grundartangi ...... 81 Fundamentals ...... 81 Profit and loss ...... 85 Cash flow and equity ...... 88 Additional ...... 90

Appendix – Bjarnarflag ...... 91 Fundamentals ...... 91 Profit and loss ...... 95 Cash flow and equity ...... 98 Appendix - Djúpivogur ...... 100 Fundamentals ...... 100 Profit and Loss ...... 105 Cash flow and equity ...... 108

Appendix A ...... 110 A.1 ...... 110 A.2 ...... 110 A3 ...... 112 A.4 ...... 114 A.5 ...... 115 A.6 ...... 116 A.7 ...... 117

Appendix B ...... 118 B.1 ...... 118 B.2 ...... 118

Appendix C ...... 124 C.1 ...... 124 C.2 ...... 125 C.3 ...... 126

Appendix D ...... 129 D.1 ...... 129

Appendix E ...... 130 E.1 ...... 130

Pictures Picture 1 Shows Landsnets distribution network in Iceland 2010 (Landsnet, 2011)...... 31 Picture 1 Shows a possible location[X] for a glycol producing plant in Helguvík ...... 38 Picture 1 Norðurþing municipal Source:Invalid source specified...... 51

Figures Figure 1 Simplified version of the process and production of the AGC plant in Iceland ...... 13 Figure 3 Shows the PESTEL framework (Aubert & Frigstad, 2007, p. 25)...... 18 Figure 4 Shows additional cost using small distributors (Landsnet (b), 2011)...... 33 Figure 5 Shows annual consumption in Europe: 500 MWh < consumption < 2 000 MWh; excluding VAT (Eurostat, 2011)...... 37

Equations Equation 1 Shows the formula for NPV (Ross et al, 2008, p. 101)...... 21 Equation 2 Shows Internal Rate of Return (Ross et al, 2008, p. 170) ...... 21 Tables Table 1 Shows project timeline - capacity - investment: ...... 9 Table 2 Shows Estimated project timeline by IDP ...... 9 Table 3 Shows G2G - Raw material usage/Product(s) distribution ...... 14 Table 4 Shows Estimated product price and raw material price ...... 16 Table 5 Shows currency rates (ISK to :) use in this report (SI, 2011)...... 22 Table 6 Employment - phase 1 + additional workers for expanding to Phase 2 and 3: ...... 23 Table 7 Shows AGC marketing cost, license fee and cost of catalyst ...... 24 Table 8 Shows AGC various fixed cost ...... 24 Table 9 Shows Investment estimate - phase 1, 2 and 3 ...... 25 Table 10 Shows AGC expected funding ...... 26 Table 11 Shows freight cost - logistics: ...... 28 Table 12 Shows the three main power consumption factors to AGC factory ...... 29 Table 13 Shows the cost of connection with the transmission grid ...... 31 Table 14 Shows Landsnet Transmission charges for intensive users ...... 32 Table 15 Shows how strain affects transmission cost ...... 34 Table 16 Shows Power consumption by electrolyser ...... 35 Table 17 Shows thermal energy usage estim. for a prod. capacity of 30.000 ton per year. .... 36 Table 18 Shows AGC Investment estimate at Helguvík- phase 1, 2 and 3 ...... 39 Table 19 Shows IPD estimated investment, equity and loan capital structure at Helguvík ..... 40 Table 20 Shows financial assumptions in the Helguvík project ...... 40 Table 21 Shows power consumption at Helguvík project...... 41 Table 22 Shows estimated profit and loss from Helguvík project ...... 41 Table 23 Shows estimated IRR and NPV from Helguvík project ...... 43 Table 24 Shows AGC Investment estimate at Grundartanga- phase 1, 2 and 3 ...... 45 Table 25 Shows IPD estimated invest., equity and loan capital structure at Grundartangi .... 46 Table 26 Shows financial assumptions in the Grundartangi project ...... 46 Table 27 Shows expected power consumption of AGC factory ...... 47 Table 28 Shows estimated profit and loss from Grundartangi project ...... 49 Table 29 Shows estimated IRR and NPV from Grundartangi project ...... 50 Table 30 Shows AGC Investment estimate at Bjarnarflagi- phase 1, 2 and 3 ...... 53 Table 31 Shows IPD estimated investment, equity and loan capital structure at Bjarnarflag 54 Table 32 Shows financial assumptions in the Bjarnarflag project ...... 54 Table 33 Shows estimated power consumption at Bjarnarflag ...... 55 Table 34 Shows trucking cost expected between Húsavík and Bjarnarflag ...... 56 Table 35 Shows estimated profit and loss from Bjarnarflag project ...... 57 Table 36 Shows estimated IRR and NPV from Bjarnarflag project ...... 58 Table 37 Shows AGC investment estimate at Djúpivogur - phase 1, 2 and 3: ...... 60 Table 38 Shows IPD estimated investment, equity and loan capital structure at Djúpivogur . 60 Table 39 Shows financial assumptions in the Djúpivogur project ...... 61 Table 40 Shows estimated power consumption at G2G factory ...... 61 Table 41 Shows profit and loss during 6 years period expected ...... 62 Table 42 Shows estimated IRR and NPV from Djúpavogur project ...... 63 List of Abbreviations NPV Net Present Value IRR Internal Rate of Return EUR Euro USD US Dollar GBP British Pound ISK Icelandic Krona NOR Norwegian Krona KW Kilowatt KWh Kilowatt hour MW Megawatt MT Metric Ton 1. Introduction The purpose of doing this analysis is to determine if a business opportunity is possible, in fact practical and viable. This study undertakes such approach as to make a realistic look at both positive and negative aspects of the business opportunity, but adds to it by looking at some aspects that might increase the value of the project and make it more profitable in the future. One angle of this study is to examine the competitive environment of Iceland towards other suitable sites like Delfzijl in the Nederland and Nepic in the North England. Both those sites have in common is that they are a developed chemical parks and as such have both good excess to feedstock, skilled labor and world class facilities in the field. In addition they use on location industrial byproducts to decrease cost and enhance protection of the environment as a result. Invest Iceland Agency commissioned a report (Investum, 2009) in 2009 that demonstrates what elements successful chemical parks would comprise of. The result that such parks would be possess harbor facility that could facility large cargo ships, have large storage areas, sophisticated drainage and effluence system but most important access to affordable electricity, steam and hydrogen (either as a bi-product from other chemical plants or as derivative from natural gas). Last but not least the park will have to be connected to international market via train network or equivalent land transport system.

It is obvious that Iceland is in a disadvantage in this regards mainly as there is no tradition for clusters of chemical plants at this magnitude, there is a shortage of skilled labor for industries and specialization is clearly needed. Iceland is fair away from the world markets and there are no gas/hydrogen sources in place in Iceland. All logistics becomes difficult and costly along with storage facility and pricy inventory management system. The only means of transport to and from international markets are through large ocean vessels that require large inventory systems at each side.

What Iceland has to offer is renewable electricity to heavy industries at price that is only one third of the average cost in Europe, steam from geothermal sources at only one fifth of common European prices. Land is also much more affordable and thanks to the currency crises in 2008 even labor cost and professional services in Iceland has become affordable and competitive. The main purpose of this study is to gather information and calculate if the advantage of building energy intensive chemical plant, mainly Propylene Glycol Plant in Iceland in comparison to sites at chemical parks in England and Holland.

Four cases were constructed, studied and evaluated: Helguvík Harbor, Grundartangi, Djúpivogur and Husavik/Bjarnarflag. Each location has a harbor that can accommodate at least 10.000Ton transport vessel. Helguvík Harbor location is next to the proposed Icelandic Silica Factory that can provide steam at affordable rate. In Helguvík is also depot of tanks at the harbor that can be used to store raw materials and products. Grundartangi site is oldest established area for heavy industry in Iceland which aluminum smelter and ferrosilicon factory and proposed Sodium Chloride factory that has hydrogen as a side product. That company has expressed interest in selling that hydrogen to AGC at affordable rate. Húsavík/Bjarnarflag, is where Húsavík would be the harbor and the tank storage area and Bjarnarflag is next to a geothermal power plant where one third of volume and one tenth of weight of the non-condensable gases that are used for power production is natural occurring hydrogen that can be abstracted, cleaned and used for production, furthermore, as the AGC plant would be built next to a geothermal power plant and thus no transmission tariff of electricity would apply. Djúpivogur has tanks and buildings that the municipality is likely to donate partially or fully to such operations.

Research Question The research question put forward is the following: Where is the most suitable site location in Iceland for raising AGC Ltd. factory and does outcome of financial and risk analysis compete with building the factory in Holland or England?

Description of the research My interest in this research was sparked during a summer course “International Trade and Emerging Markets” at Bifröst University, Iceland. In that course we the students were introduced to proposed raising a factory in three different locations: Delfzijl in Nederland, Bordeaux in France, and Fray Bentos in Uruguay. It emerged that a similar approach would take place in Iceland and a search for suitable building site was needed. The topic is interesting as it involves investment in Iceland and completely new industry that could add more volume to Icelandic industrialization.

The objective of the research The object of this report is to obtain and to analyze more knowledge of suitable location site for AGC factory in Iceland if one could be identified. The study will attempt to use financially recognized methods to value each location and to find what will be the best solution for AGC in Iceland according to those valuations methods.

Research Method The research study will be based up on two measurements tools; gathered quantitative secondary data from published internet web sites and qualitative data that will be gathered through e-mails and telephone calls during the fall period September to November. By twinning those two measurements methods together it will hopefully result in a clear conclusion whereas the idea is that the two will support each other and add value to the research.

Limitations In a preliminary study like this assumption are made to further advance the project. Using assumption in such way will always cause inaccuracy in calculations and therefore the conclusions are not as reliable as attempted, but could still give a pretty fair value of the job that was at hand. This study is a concept screening for the proposed plant and very little is known other than what type it is and what capacity it will generate. Because of limited available information and amount of estimates in this study a wide accuracy should be expected and more advantaged research should be made if the conclusions are considered profitable.

2. AGC

About AGC Atlantic Green Chemicals (AGC) is a company that is formed to execute green and environmental chemical manufacturing projects, using renewable raw material as a feed stock for its products and by using renewable energy source in the production of its products. This newly constructed firm is looking for a possible industry site to build a factory and has intended the location for its first plant to be in Western Europe. There are a few interesting sites identified as suitable for a factory of this caliber both in Iceland and other Western European countries. In Iceland’s case four sites are considered most attractive in regarding satisfying energy source. Those are Bjarnarflag in Norðurþing municipal on the north-east coast, the industrial site at Grundartangi in Hvalfjöður, a new industrial site at Helguvík in Reykjanes peninsular and in Djúpivogur municipal on the east coast.

Gunnlaugur is a specialist in green chemistry and heterogeneous catalysis process technology and has collected over 25 years’ experience in chemical plant design, engineering, project management, manufacturing and product development. After graduation he spent two years as a branch manager of the Icelandic Fisheries Laboratories branch in East Iceland. Thereafter, he founded and managed a company, Kraftlýsi Ltd, which specialized in marine food supplements and marine oils.

After 9 years of running his own company he returned back to consulting engineering and was a member of a design team for some of the largest geothermal projects in Iceland working under the auspices of VGK Ltd, where he worked for almost 9 years. Gunnlaugur was the main process designer for a polyol plant that was built by Global Bio-Chem in China in 2005, using sorbitol as a feedstock. He managed and coordinated the design, supervised construction and was responsible for the start-up of the plant.

In 2006 to 2007 he became on-site engineer in El Salvador for the construction of an ORC- binary cycle power plant which was built by Enex Ltd, an Icelandic power plant technology provider. In Q3 of 2007 he became the project coordinator for the site preparation of a geothermal deep drilling project of Geysir Green Energy in Bavaria, Germany. At the end of 2008 Gunnlaugur decided to explore his interests within green chemistry full time and has since then dedicated his efforts on the chemical technology company Icelandic Process Development Ltd which he founded in 2006.

Since 2007 IPD has operated a sophisticated fully staffed pilot plant in Reykjavik for the proof of processes and the verification and characterization of utilities, energy, and specific consumption parameters. This pilot plant is well suited to develop and test various kinds of catalysts and process conditions, by using hydrogen and a variety of biomass feed stock. Rannis (Icelandic Research Council) granted IPD a 3 years support in 2008 for testing and catalyst’s developments. One of the results from operating the pilot plant resulted in a newly achieved process patent, registered in Iceland in January 2011. This patent has already been filed and is pending internationally (PCT). The patent involves processes using glycerin and other sugars to produce renewable chemicals, such as glycerin, which delivers mainly and with high selectivity propylene glycol and ethylene glycol, valuable and in high demand commodities. This process is considered more efficient and environmentally friendly than prevailing glycols processes based on petrochemicals sources.

The Officers at AGC Dr. Andri Ottesen, Chief Executive Officer

Mr. Ottesen graduated from the International School of Management, Paris, France in 2007 with Ph.D. in the field of International Business Management. He was also a Graduate Fellow from Stanford, USA, in 2002 and in Leipzig University, Germany, where he received a grant from the German Ministry of Educations (DAAD). He graduated in 1999 with MA in Commerce from Otaru University, Japan, with grant from the Japanese Ministry of Educations (Monbusho). In 1996 he graduated with MBA from California State University, Fullerton on a scholarship from the American Marketing Association. In 1995 he graduated from the same school with degree in International Business and Foreign Languages. Currently Mr. Ottesen is the director of business operations at Carbon Recycling International (CRI) in Iceland, the world first factory that converts industrially emitted CO2 to renewable methanol. Before joining CRI Mr. Ottesen was the Managing Director of Seed Forum Iceland and “Klak” which is the Center for Entrepreneurship, Reykjavík, Iceland. He was head of

5 division/budget analyst for the Icelandic Ministry of Finance for 6 years where his responsibilities where to approve the national budget towards ministries of employments and natural resources. Mr. Ottesen is a member of the Icelandic Crisis Respond Unit and has served as appointed Major in Kosovo in 2003 where he was an Economic Advisor to NATO.

Mr. Ottesen has taught regularly at the University of Iceland, University of Reykjavík, University of Bifröst and Icelandic Agricultural University, all located in Iceland. In 2010 he was qualified as Assistant Professor at University of Iceland. His teaching subjects are Marketing, Finance, Entrepreneurship, International and Macro Economics, Strategy and Leadership.

Magnús Magnússon, is Chief Engineer at AGC

Mr. Magnússon graduated with M.Sc. in Exploitation of Materials in 1979 and has BSc in Mechanical Engineering in 1978 from the University of Leeds, England. He has qualified various management courses which include quality management, reengineering and negotiating technique. He was certified from The US National Training Branch to audit Haccp systems. Process improvement leader series certificate form PMI, USA in 2006. He graduated with Mechanical Engineering degree from the Technical Collage of Iceland. He was the Director of Project at CRI where his responsibility was to build the world’s first CO2 to Fuel factory at Grindavík Iceland. He was Chief Executive Officer of Almenna Consulting Engineers. Mr. Magnússon was a partner and a Senior Consultant at Deloitte & Touche Management Solutions Ltd. in Iceland. He was Managing Director of Reykjanes Geo- Chemicals Ltd, where he reconstructed the financing of the company and was involved in the startup in a new product from precipitated silica. Mr. Magnússon was heavily involved in the Icelandic fishing industry where his profile includes the Head of Production and Marketing at ÚA Plc. (one of Icelandic leading fishing process company), Production Manager at Síldarvinnslan Plc., Fjarðarbyggð.

Mr. Magnússon was a lecturer at University of Iceland, The Technical Collage of Iceland and to United Nations University in Iceland during 1980-2000 on Quality Management, Operational Research and Statistical Control.

International partners

Godavari Biorefineries Ltd. is owned by Somaiya Group and is the 2nd-3rd largest sugar mill operator in India. Its production is now 475 thousand Tons (2010) of sugar and sugar derived products. Godavari had an interest to build a glycol plant in India using sugar as feed stock (Somaiya, 2011). Those plans turned to be unprofitable due to drastic rise of sugar price in 2009-2010. Godavari has expressed interest in participating in a European project in an MOU after IPD suggested using glycerin instead of sugar in the manufacturing unit. Godavari Biorefineries has supported and cooperated with IPD for over 3 years on the field of sugar to glycol technology developing platform. Somaiya has strong operational ties to Helm and Vinmar and has expressed interest as bringing them in as minority co-investors.

Icelandic Process Development (IPD) has initiated and concluded a letter of interest for the potential of selling and distributing glycol products with Helm AG. The letter of interest states that Helm AG is obligated to sell all off AGC products at market value at the cost of 5% sales fee for Helm AG. Helm AG was founded in 1900 but since 1950 the company´s focus has been on chemical trading. Today Helm AG is an international chemicals distribution and marketing company, located in Hamburg, Germany, with operations in over 30 countries and a yearly turnover around EUR 8 billion (Helm AG, 2011).

Vinmar International Ltd. is an international distributing company of chemicals and polymers located in Huston, Texas in the United States. The company was founded in 1978 and operates as a subsidiary of Vinmar Group. Vinmar International

also offers market analysis and counseling in various fields such as logistics, marketing and sales and so forth. In 2006 the company shifted its focus to added fuels trading, specializing in ethanol and natural gas liquids. Vinmar International operations arena is worldwide. (Vinmar International ltd., 2011).

The Perstorp Group is a world leader in several sectors of the specialty chemicals market. Perstorp focuses on performance culture that creates resource-efficient and environmentally sustainable solutions for business clients within selected niches of organic and polymer chemistry. Perstorp offers many innovative chemical solutions. In their role for an application or product competitiveness, using specially formulated chemicals, they give their products elements of surprise in the marketplace. Perstorp is operating a medium sized biodiesel operation at their headquarter location in Stenungsund, Sweden (Perstorp Group, 2011) and can provide up to 30.000 tons per annum of 97% technical grade glycerin.

The project The first steps in raising a factory capable of producing 30.000 tons per annum of products in an industrial scale plant in Iceland. Within two years’ time plan is to double the size of that factory again to the production capabilities of 65.000 tons per annum, and after five years from initial first step was taken the final expansion would take place and the production capability will reach 125.000 tons per annum. The engineering, procurement and construction cost for the overall glycerin purification and conversion plant is estimated to be around EUR 17, 8 million. This total installed cost has an estimated accuracy of -10/+35 % according to IPD estimation. Further investments are needed in some of the locations and in others they will be reduced. But in every location there is need for connectors for energy as AGC factory can be regarded as an intensive user of energy, but do not fully reach the intensive users category which is required by law until for filling 10 MW criteria or 80 GWhours.

Table 1 Shows project timeline - capacity - investment:

Production capacity in tpa Year/description: Phase 1 Phase 2 Phase 3 Total (Feasibility study cost 1 M.euro) Investment - EURO: 17.851.423 15.000.000 19.900.000 52.751.423 Capacity - tons(products): 30.000 35.000 60.000 125.000

0 1 30.000 100% 30.000 2 30.000 100% 30.000 3 30.000 100% 35.000 100% 65.000 4 30.000 100% 35.000 100% 65.000 5 30.000 100% 35.000 100% 60.000 100% 125.000 6 30.000 100% 35.000 100% 60.000 100% 125.000 7 30.000 100% 35.000 100% 60.000 100% 125.000 8 30.000 100% 35.000 100% 60.000 100% 125.000 9 30.000 100% 35.000 100% 60.000 100% 125.000 10 30.000 100% 35.000 100% 60.000 100% 125.000

Further benefits to mention are low costs for land rent, competitive construction market, and access to highly skilled, experienced and educated labor and management personnel. In general the efficiency of Icelandic workforces is considered high. The time schedule for designing and building the plant is estimated 13-15 months from the project’s execution decision date.

The purpose of the small scale plant is to bridge, transform and verify technology concepts prior to the construction of a large scale industrial unit

Table 2 Shows Estimated project timeline by IDP

Year 2012 2013 2014 2015 2016 2017

Permitting

Phase 1 Construction Operation Phase 2 Construction Operation Phase 3 Construction Operation

Phase II:

G2G-Plant-II: Modular designed plant producing about 100 tons/day or 35.000 tons per annum of products.

Estimated cost is EUR 15 million with an accuracy of about -10/+35 %. Start-up and commissioning is possible in Q1 2016.

Cost and time figures have to be re-evaluated in a detailed feasibility study.

Phase III:

G2G-Plant-III: Modular designed plant producing ca. 370 t/day or approximately 120.000 tons per annum of products.

Estimated cost is EUR 19, 9 million and the accuracy estimate at this time is -10/+50 %.

The commissioning and the plant startup are possible 2017-2018. Cost and time figures have to be evaluated in a detailed feasibility study.

Further expansion plans in terms of multiple plants.

About the Cost and time Preliminary estimate of the investment cost of the Phase I am EUR 17, 8 million which will yield 30.000 tons of products with a total sales value (at full capacity) of EUR 33, 1 million. The accuracy of those estimates is considered to be in the range -10%/+35%. Initially 1,0 million Euros is needed to finish necessary contracts, permitting, and to start the front engineering design (FEED) intended to be finished by mid of 2012. After the execution of FEED, that will include budget prices for several major equipment, the accuracy of the cost estimate will subsequently improve and can likely be -10%/+20%. If detail design and the ordering of key equipment with a long lead time can be realized in end of 2012, the physical construction is scheduled for mid of 2013 to enable production by end of 2013.

About the Risks

Locations Risk One of the risk factors related to an Icelandic location is the current rater volatile political environment due to and after a bank meltdown in late 2008. Recent and rapid changes around governmental regulations have affected several projects and project preparation. For example, cooperative taxes have increased from 15% in 2005 to 20% in 2011. Also an Icelandic location is subject to changes in freight costs and the development in crude oil pricing which

10 affects both feedstock and cost of product delivery. On the other hand the product prices will develop in a relation to petrochemical raw material prices, so price increase in crude oil will also result in an increase in product prices. This will more than compensate for the variations in freight costs due to changes based on fuel cost variations.

Operational Risk The main operational risk of this project is price fluctuation of crude glycerin and that crude glycerin will increase more proportionally than the glycols being manufactured. As crude glycerin is a by-product of biodiesel production a likely scenario is that supply will increase with EU target by 2020 of doubling the use of renewable fuels. Competing use of glycerin are methanol production by companies such as MCN in Netherlands, which converts glycerin to methanol and new processes of the chemical company Solvay making epichlorhydrin, which is intermediate chemical for plastics. Methanol is a relatively cheap chemical, so BioMCN will unlikely be able to follow rising price of glycerin unless up to a certain level, so this will dampen the raw material market.

Market prices for propylene glycol are expected to rise correlated to oil price as the main raw material for conventional propylene glycol is propylene a directly derived petrochemical product, thus hedging the price fluctuations of crude glycerin.

Permitting Risk Permits need to be obtained by the local and national government. The most important permits are environmental impact assessment and operational permits. Most of the sites are already developed as industrial areas except for Djúpavogur, and no harmful emission will come from the factory. Obtaining these permits is standard procedure, but this must be adapted towards the specific site conditions and site requirements. However, these procedures that are depending on local authorities might take more than one year to obtain, therefore they might possess some scheduling risk. Necessary permits are however usually achievable well within a year when projects are related to renewable industries in Iceland.

Technological and Scale Up Risks Technological risks are believed to be mainly related to performance and lifetime characteristics of the catalysts and catalysis systems, thus requesting decent and long time and fundamental testing of catalysts to be applied. Reflecting IPD experience in process scaling up projects using adherent reaction systems the scaling up risk has showed little deflection towards the proportioning of the equipment and systems, but more related to unexpected process fluid contamination, lack in material quality or due to poor operators skills. 11

In this project the catalyst candidate is commercially available, specially adapted for this particular process by IPD. It has been extensively tested both by the manufacturer and also by IPD. Testing runs for over 8000 hours or for one year have been realized. IPD has developed special process features with this catalyst and tested it for 2000 hours under strain conditions. The results obtained from those tests were outstanding and partially used to achieve process patent. As part of the patent process all results have scrutinized by the patent authorities and IP legal office.

Project Cost Risk The presented Phase I project cost estimate, at the current stage of the project preparations, of MEUR 17, 8 has -10%/+ 35% inaccuracy. The next pre-engineering work will deliver more accurate numbers given the site specific information specifics. Even though in worst case analysis of the project cost, the project profitability still looks promising as the EBITA exceeds 35%, thus the project economy shows rather little dependency on variations in capital cost.

The history of the idea to produce glycols by hydro-treating of glycerol steams from IPD participations in two related projects. The former project was a pilot test executed in South Africa for almost three years in 2001 to 2003. The aim of that project was to use sugars from sugarcane mill to convert to glycols. The later project was executed in China over the period from 2003-2005, with the aim to process corn glucose to glycols. This project was rated for as 10.000 MT per year demonstration unit. The experience and know-how from the processes further lead to independent improvements and verification of new catalyst systems and subsequent process technologies. In 2008 IPD build its own pilot plant for catalyst testing and process development. Prove of process was achieved in 2009 that lead to a granted patent in January 2011.

In test systems of this kind catalyst performances, in particular; yield, product selectivity, hydrogen usage and catalyst lifetime characteristics are measured. This leads in general to an effective scale-up of chemical processes of various kinds.

The process Production process involves the pre-handling of glycerol; it is mixed with water and brought into the reaction system as it comes into contact with specific solid catalyst along with hydrogen. Additionally the process also needs the help of a catalyst, in this case it is alkali- hydroxide but in small quantities to maintain the conditions and to ease the rapid reaction of the preferred way. The hydrogen is piped into the system as well as other feeding chemicals and the conditions thus created are to convert glycerin into glycol and some other alcohols. The remaining production process is primarily to isolate and strengthening of the products formed.

Figure 1 Simplified version of the process and production of the AGC plant in Iceland The main elements of the process essentially constitute the bulk of the production which is based on evaporation, thickening and distillation. These are relatively large heat users. Hydrogen would be produced by conventional electrolysis or possibly lead to the processing from other manufacturer in the area that had a by-product hydrogen. All water and other

13 unreacted materials are circulated and the process is thereby to maximize yield and utilization of the materials.

In addition to liquid products, methane formulates in the productions process. This is a new domestic source of methane, the energy medium suitable for cars. By using certain parcel of circulating gases in the thinking process for the methane, the methane rate is increased to > 90% v / v. This process would increase methane production in Iceland and would bring in a more stable stream of the product, as the other producer of methane in Iceland is using a landfill area in Álftanes (in Reykjavík) and is therefore limited by both time and space.

The products The main products of AGC are shown in Table 3 below, but consist mainly of two kinds of glycols; Propylene glycol (86 % of production by weight) and Ethylene glycol (11 %). The remaining 3 % of the production are a mixture of second generation bio-ethanol and bio- methanol and in addition to that some methane will be generated as gaseous by-product. In this research it is assumed that those productions products would be the same in all locations.

Table 3 Shows G2G - Raw material usage/Product(s) distribution

distribute Phase 1 Phase 2 Phase 3 Total Raw material / products weight MT/year MT/year MT/year MT/year

Production capacity 30.000 35.000 60.000 125.000

Crude Glycerin (crude 80%) 41.209 48.077 82.418 171.703 Net feedstock Glycerin (100 %) 32.967 38.462 65.934 137.363

Methane 1,5 % of feed Glycerin 495 577 989 2.060 Methanol 2,0% 600 700 1.200 2.500 Ethanol propanol 1,0% 300 350 600 1.250 Total Alcohols. 3,0% 900 1.050 1.800 3.750

Propylene glycol 86,0% 25.800 30.100 51.600 107.500 Ethylene glycol 11,0% 3.300 3.850 6.600 13.750 Total liquid Products. 100,0% 30.000 35.000 60.000 125.000

Total liquid products - excluding methane: 30.000 35.000 60.000 125.000

Propylene glycol is used as a base compound in poly-glycol ethers and in polyurethane- and polyester-resin formulations. Examples of products using propylene glycols are insulation foam compounds, furniture, automobile interiors, resin in reinforced fiber glass for boat hulls

14 and rubber compounds for shoes. Propylene glycol is also used as surface active ingredient in cosmetics, hygienic and pharmaceutical products.

Propylene glycol is a colorless, viscous liquid at room temperature. It doesn't have a true freezing point, but becomes glasslike at -50°C, and it can lower the freezing point of water to about -60°C. Propylene glycol is essentially nontoxic (generally accepted as a food product) in comparison to ethylene glycol with its acute toxicity to mammals. Hence, the share of propylene glycols of the U.S. and European aviation deicer market has grown significantly. Companies like Union Carbide, Lyondell, Kilfrost and Clariant are among the major players in the market. Shortages in supplies of propylene glycol lead to temporary closing of several national airports in Europe late 2010. Affected airports were among others Heathrow, Amsterdam, Frankfurt and Charles de Gaulle.

The market price in September 2011 was around EUR 1.250 pr MT free delivered in North- West Europe (Rangarajan, 2011).

Ethylene glycol is used as a base compound in polyester formulations such as PET–bottles and textile products, it is best known as radiator coolant liquid and antifreeze. Estimated world market size in 2010 is 19.9 million metric tons (SRI Consulting, 2011) and the market price in 2011 where around EUR 1230 pr MT free delivered North-West Europe.

Ethylene glycol has been the standard for antifreezes and deicers for decades because of its relative low cost. It is a colorless, slightly viscous liquid with a freezing point of -13°C, and it can lower the freezing point of water to about -50°C. Today the more environmental propylene glycol is preferred.

The market price in June 2011 was around EUR 1.230 pr MT free delivered in North-West Europe (ICIS (a), 2011).

Bio Methanol and Ethanol is currently blended into gasoline in Europe. European directives require increasing percent of renewable fuels to be blended into gasoline, currently around 6% of energy value, to be increased to 10% by 2020. Incentive programs such as tax discount and pay back policies have been put in place in most of the EU countries to reach these goals. Second and third generation of bio fuels from byproducts or emissions are given preference for tax incentives. According to European Directive 2009/28/EC (European Parliament, 2009) 46, 5 million m3 should be blended into either diesel or gasoline by 2020, that requirement is only met today by 24, 5 million m3 of biodiesel and 1, 9 million m3 of ethanol that is mostly imported from Brazil.

About product application Propylene glycol can be the main component for de-icing for aircrafts. Chloride salts deicers are prohibited for use in aviation because of corrosive characteristic. Therefore historically mixtures of Ethylene glycol and Propylene glycol have usually been used. Glycols and other deicing chemicals are efficient freezing-point depressants. They act as an agent to lower the freezing point of the solvent. Today, Propylene glycol is the main component of aircraft deicers (about 80%), 10% is water and 10 % other chemicals. Typical application of deicing fluid is to spray on critical surfaces of an aircraft, such as the wings, flaps, and fuselage. It is heated to 65°C - 80°C and sprayed on aircraft surfaces at high pressure to melt or remove ice, snow, or sometimes just defrost.

Market prices of raw material and products

Table 4 Shows Estimated product price and raw material price

Chemicals: Price Phase 1 Phase 2 Phase 3 Total Total value in Euro Raw materials Crude Glycerin (80 %), ex factory 2801 11.538.462 13.461.538 23.076.923 48.076.923

Glycols Propylene glycol 1.1502 29.670.000 34.615.000 59.340.000 123.625.000 Ethylene glycol 8503 2.805.000 3.272.500 5.610.000 11.687.500 32.475.000 37.887.500 64.950.000 135.312.500 Alcohols Ethanol 7004 210.000 245.000 420.000 875.000 Methanol 7005 420.000 490.000 840.000 1.750.000 700 630.000 735.000 1.260.000 2.625.000 Gas 6 Methane (0,714 kg/Nm3) 400 197.802 230.769 395.604 824.176

Total - without methane: 33.105.000 38.622.500 66.210.000 137.937.500 Total - average price pr MT 1.104 1.104 1.104 1.104 Total revenume - with methane 33.302.802 38.853.269 66.605.604 138.761.676

1 Source: Rajiv Rangarajan, Director Somaiya Biorefinaries BV - Head trader for chemicals in Holland Office. Visit to Iceland 4. September 2011 (Rangarajan, 2011). 2 Source: Rajiv Rangarajan, Director Somaiya Biorefinaries BV - Head trader for chemicals in Holland Office. Visit to Iceland 4. September 2011 (Rangarajan, 2011). 3 Source: Rajiv Rangarajan, Director Somaiya Biorefinaries BV - Head trader for chemicals in Holland Office. Visit to Iceland 4. September 2011 (Rangarajan, 2011). 4 Source: Andri Ottesen Director of Business Operations CRI. E-mail 11.desember.2011. Sold for domestic use. 5 Source: Andri Ottesen Director of Business Operations CRI. E-mail 11.desember.2011. Sold for domestic use. 6 Source: IPD estimates 16

Market prices of the raw material and AGC products are based on prices during the period May to September 2011 in the western European markets. The accuracy of those prices is limited due to little or no public listing of those prices. There is of course volatility present at the European markets, and those prices have the tendency to increase or decrease, but do not have effect on selection of location for AGC factory. Our international business partner HELM has guaranteed the sale of our main products the glycols and alcohols at the price of 5% of market value.

3. Literature view This project is based more on the field of realistic approach than academic theories, and there for it will lack the depth of academic fulfillment that otherwise would be have given this report both structural and deeper validation. There is however a few theoretic approaches that will be examined in this report and used to build foundation for conclusion about each location and to give final assessment about the results.

There are both external and internal factors that all firms need take notice of and base their future strategy with those factors in mind. The external factors are related to forces in a firm’s external environment, and such can lead to new growth opportunities or can form of threats. Example of a new opportunity is when a company can exploit the difference between countries or/and geographical regions to achieve economies of scale in broadening the size of the market they serve. Example of threat could be the entry of a new competitor on the market that can weaken the position of existing firms. Internal factors are conditions within the firm itself. Example of an opportunity from within could be a firm’s desire to exploit and employ its resources and competences and the threat could be the threat of matching the firm’s resources and competence to the marked. (Boddy, 2008, pp. 119-127) (Aubert & Frigstad, 2007, pp. 18-20).

PESTEL The aim is to analyze the external environment of a firm by applying the PESTEL framework. The model is divided into six categories that represent the most influential factors in the firm’s environment which are indicated as; political, economic, social-cultural, technological, environmental and legal factors. The model can be regarded as a checklist about how to evaluate the firm’s environment and as the macro-environmental forces changes over time it is imperative to understand the key drivers of change and the impact they have on particular

17 industries. PESTEL analysis relies on past events and experiences, and from a prescriptive strategy view it can be used to forecast about the future, but should be focused on things that do have impact or are most likely to change and affect the firm (Lynch, 2009, bls. 82-83).

Political environment The political system in a country has a major influence on how businesses and industries operate. Political factors are closely linked to economic factors especially in how they allocate resources and deal with property ownership. In many words political stability and type of government are political factors that can determine attractiveness of the market. As seen here in Iceland political and social events can have deep impact on profitability firms as the whole economy can be stained with political risk (Boddy, 2008, p. 121).

 Sovereign risk which could arise from policies and decisions of the government,  Lack of consistent legislation and effective policies.  Corruption within the government or/and local municipality  International risk that are linked to developments to the international political arena  Policies towards foreign companies acquiring local firms  Patent and intellectual property policy

Political

Legal Economic

The external environment of a firm

Environmental Socio-cultural

Technological

Figure 2 Shows the PESTEL framework (Aubert & Frigstad, 2007, p. 25).

Economic environment Economic environment is both at local level and international level of a country. It includes economic development and has significant impact on firm’s activities in the market place and the size of the market. Example of economic development is could be income per head of the population or measure of gross domestic production (GDP). To operate in the economic environment firms need to adapt to a veracity of many opportunities or/and obstacles, to name a few; currency rates, interest rate and inflation rate, that are likely to considerably affect a firm’s revenues and future growth.

 Unemployment rate  Labor cost  Stock market values  Currency exchange controls

Social-cultural environment Social-cultural factors have most effect on firms and industries when there is a change in form of increase or decrease in population of the country. Another similar factor could be if the population is aging which could indicate more demand for healthcare or the average age could be lowering which would indicate more demand on daycare and education. Cultural barrier can be an obstacle for firms moving between countries or country sites, as the difference can be in form of religion, old traditions and languages (Hollensen, 2011, bls. 242). Other important factors are (Boddy, 2008, p. 120):

 Lifestyle in changes  Levels of education  Levels of healthcare  Gender equality

Technical environment For a firm it is of most importance how well the basic infrastructure in the country is made. Infrastructure is basically the physical facilities that support all economic activities (Boddy, 2008, p. 124). So what we call basic infrastructure in each country we are referring to example:

 Road system  Telecommunications system

 Volume and stability of power system  Ports  Airports

Natural environment For the business context the natural environment has increasingly become a factor that represents an opportunity or threat. One of the key issues is the consideration of natural resources on what is renewable and what is not. Example of this could be oil which is not a renewable resource but geothermal power is renewable. More and more firms adapt to this new environmental friendly practices as a result of the demand from the market which is a part of the changed lifestyle in the western hemisphere. There has been increased demand of more environmental friendly products from the public and government. A special interest has been shown from international agencies over the recent years in issues evolving the protection of the environment (Boddy, 2008, p. 125).

 Environmental laws  Waste disposal  Environmental governance

Legal environment Every country has its own laws and regulations that the government creates for the firms and industries so they can operate in the economy without collision. A change in regulation can affect operation of a firm in the market both for the better or worse for the firm. Example of this could be if the government would put a tariff on import on beef, it could benefit some producer within the industry, but could damage the sales on imported beef for importers and the distributers. Example of legal factors that could affect the market is (Boddy, 2008, p. 97):

 Tax laws  Labor laws  Competitive laws  Consumers protection laws

NPV The Net Present Value (NPV) method is used for measuring the profitability assessment of investment over period of time. In the most general terms, the NPV criterion method can be divided into four subtopics or time analysis periods: present worth method, future worth

20 method, annual worth method, and capitalized worth method (Remer & Nieto, 1995, p. 82). The present worth method that is used in this report is in most fundamental way, can be descript as the present value of all cash inflows is compared to the present value of all cash outflows associated with the investment project. What is called the NPV rule indicates that investment is should be accepted if the NPV is greater than zero and subsequently to reject project that if the NPV is lower than zero (Ross, Westerfield, Jaffe, & Bradford, 2008, p. 162). In calculating the NPV the user must determine the interest rate used in discounting the cash flow, and in most cases the rate is at where the investors can alternatively invest their money, i.e. the return of the most preferable alternative investment. Another important factor is the planned horizon of the project which has to be determined as well, and subsequently the cash flows for each period of the planning horizon projected (Remer & Nieto, 1995).

Equation 1 Shows the formula for NPV (Ross, Westerfield, Jaffe, & Bradford, 2008, p. 101).

NPV

Where

CI = Net cash flow at the end of period T.

i = interest rate of the project

T= Service life of the project

When comparing mutually exclusive alternatives the investors need to select the one that has the greatest positive NPV. But when comparing alternatives it is of most important to use the same interest rate and equal time periods for all alternatives investments. (Remer & Nieto, 1995, p. 85).

IRR The Internal Rate of Return is most important alternative to NPV method. The IRR is calculated both on project and equity.

Equation 2 Shows Internal Rate of Return (Ross, Westerfield, Jaffe, & Bradford, 2008, p. 170) One of basic rationale behind the IRR method is that is provides a single number which summarizes the merits of a project and does not depend on anything except the cash flow of the project. Note that the single number does not depend on the interest rate prevailing in the capital market, but much rather that the number is internal or intrinsic to the project and does

21 not depend on anything other than the cash flow of the project. The general rule of IRR is to accept projects if IRR is greater than the discount rate and reject the project if the IRR is less than the discount rate. (Ross, Westerfield, Jaffe, & Bradford, 2008, pp. 169-171).

4. Framework of this analysis In this analysis there is used the same excel model in all different locations. In our search for finding profitable location for AGC factory, the focus is mainly on the big cost drivers and other cost is mostly fixed. The following chapter is therefore in two fields of exploring this excel model, the first field is about big and expensive cost drivers that vary from location to location. And the other is about the smaller field that does not affect the big picture as much or is important but is similar to all locations.

Similar cost between locations

Currency In forming this analysis it was crucial to synchronize currency to a fixed level. There are few currencies that are used trough out this report and that can be problematic do to volatility at the financial markets. To asses that problem the decision was taken to use fixed numbers as shown here below.

Table 5 Shows currency rates (ISK to :) use in this report (SI, 2011).

USD 116,0 EUR 159,0 GBP 183,0 NKR 21,00

Those currencies are chosen and fixed in this analysis to ease calculations and neutralize fluxions in currencies. Those numbers were chosen as a result of taking the average position each currency had against the Icelandic krona (buy) during the time period 1st of September 2011 and 11th of November 2011.

Employees The staffing of the company and what requirement each job holds is based on estimates by Icelandic Process Development. As seen in the tables below the staffing requirements are based on three phases. The first phase requires 22 people, the second requires 30 people and the third requires 39 people.

Table 6 Employment - phase 1 + additional workers for expanding to Phase 2 and 3:

Unit cost Phase 1 Phase 2 Phase 3 Description pr year Number Euro Number Euro Number Euro Managing Director 58.1257 1 58.125 Production Dir. 55.3508 1 55.350 Laboratory Dir. 49.0509 1 49.050 Line staff 24.90010 12 298.800 4 99.600 4 99.600 Maintenance 41.25011 2 82.500 1 41.250 2 82.500 Quality assurance 40.95012 2 81.900 1 40.950 1 40.950 Office workers 41.55013 1 41.550 1 41.550 0 Various 27.75014 2 55.500 2 55.500 1 27.750 Total: 22 722.775 9 278.850 8 250.800

Phase 2 - total staff and cost: 31 1.001.625

Phase 3 - total staff and cost: 39 1.252.425 The table shows the additional employee cost each phase ads and in what field of expertise the increasing numbers are. The wages are based upon surveys from selective workers unions within this year, but are mostly from the first months of the year 2011. In all cases the medium salary in same or similar field was used except in the case of managing director and production director the highest amount was used as in those two cases the higher wages are more likely to give better example of current market structure on wages due to the difficulty of the new industry. In all location the need will be the same for staff and the decision was made that the same amount of wages will be used in all locations. There are of course differences in wage structure in Iceland and it is very probable that ground staff in Bjarnarflag or Djúpavogur would be willing to work for lower wages than in Helguvík or Grundartanga, but at the same time that would be the opposite problem regarding very skilled or highly educated employees in management and supervision. It is there for a likely scenario that wages structure would be on level terms regarding location in Iceland.

7 Framkvæmdast/önnur stjórnunarstörf (VR, 2011, p. 6). 8 Sviðsstjórar (VR, 2011, p. 6). 9 Vöruþróun og hugbúnaður** (VFI, 2011, p. 19). 10 Framleiðsla eða pökkun (VR, 2011, p. 7). Note: without extra % because of sifts 11 Eftirlit (TFÍ, 2011, p. 18).

12 Eftirlit (VFI, 2011, p. 19).. 13 Hag- og viðskiptafræðingar (VR, 2011, p. 6). 14 Gæslu-, lager- og framleiðslustörf (VR, 2011, p. 7). 23

Marketing cost, license fee and cost of catalyst Marketing cost, license fee and cost of catalyst as shown below are based on recommendation from IPD and representative of Somaiya Biorefineries in Holland. Included in the marketing cost is storage for AGC products in Rotterdam and unloading cost propylene and ethylene glycols. As indicated earlier our international partner Helm has guaranteed the sales of AGC products in the international market but at the cost of 5% of the sales price.

Table 7 Shows AGC marketing cost, license fee and cost of catalyst

Desription Phase 1 Phase 2 Phase 3 Total

Marketing cost: 4,0% of sales: 1.332.112 1.554.131 2.664.224 5.412.500

Royalty: 1% of sales 1% Euro per t product.: 331.050 386.225 662.100 1.379.375 Catalyst cost 40 Euro per t product.: 1.200.000 1.400.000 2.400.000 5.000.000

The royalty cost is the exclusive fee for the design and process license that belongs to IPD owner Mr. Friðbjarnarson.

Various fixed cost In the table below there is a list of some various cost that will be very similar between locations, the only variable that do behave differently are maintenance and insurance because they are calculated here as a percentage of the total investment and therefore will change between locations, however that fact will not have significance to the choice of location and therefore it is of less concern than other factors.

Table 8 Shows AGC various fixed cost

Phase 1 Phase 2 Phase 3 Total

Maintenance: 4,0% of investment: 606.747 600.000 860.000 2.066.747 Insurance: 0,75% of investment: 113.765 112.500 161.250 387.515 Travels - staff: 7000 Euro per person 28.000 7.000 7.000 42.000 Telephone: 400 Euro per person 8.800 3.600 3.200 15.600 IT system: 1700 Euro per person 37.400 15.300 13.600 66.300 Security: estimate 60.000 15.000 15.000 90.000 Auditing and consulting: estimate 70.000 17.500 35.000 122.500 Various cost: estimate 184.942 154.180 219.010 558.132 Total - various fixed cost: 1.109.654 925.080 1.314.060 3.348.794 Percentage of total sales: 3,0% 2,1% 1,8% 2,2%

Other important aspects of the business plan are as follows:  Energy usage is based on an estimate made by Icelandic Process Development.  Other cost factors are based on experience from industrial projects in Iceland, Europe and America or is an estimate made by Icelandic Process Development.

Different between locations In this category are the most costly factors to the new factory. The following cost drivers affect the investment or/and operations depending on location. In many locations there is not much difference individually between investments but the cost can change the financial structure significantly.

Investment cost The following table shows what IPD assessments of probable investment cost for the 1 phase. Those buildings mentions below are what IPD identifies for required need in building the G2G factory of 30.000 tons capacity. The need for investment cost for phases 2 and 3 are identified as well but not in details, but additional hydrogen electrolyser and storage tanks are need for expanded operations..

Table 9 Shows Investment estimate - phase 1, 2 and 3

Phase 1 - 30.000 tons capacity: Euro Depreciation Design, engineering, construction management: 1.500.000 9% 10,0% Land, building and premises: 1.200.000 7% 3,0% Storage tanks: 1.400.000 8% 10,0% Hydrogen electrolyser: 3.000.000 18% 12,5% Evaporators and distillation: 3.800.000 23% 10,0% Other fixtures and fittings: 3.200.000 19% 10,0% Contingency: 2.500.000 15% 10,0% Total: -10 % /+35% accuracy 16.600.000 100% 1.651.000 annually Year 0-2 Phase 2 - 35.000 tons capacity: Total investment: -10 % /+35% accuracy 15.000.000 9,9% Year 3-4 Phase 3 - 60.000 tons capacity: Total investment: -15/+-50 % accuracy 20.700.000 9,9% Year 5-6 At some sites there will be change from this table either added or withdrawn investments that will be suited to each location. Initial investment is one of the key areas of our research as we look at each location, with the purpose of valuating the total investment needed and assess them toward operations.

It is possible to decrease the estimated investment cost in Phase I: Firstly, if AGC could build the Phase I of the project where it would have access to hydrogen from external source. By 25 that the investment would be decreased by about EUR 2, 4 million or to EUR 14, 1 million. Secondly, it could be an option, depending on location, to hire tank space. Our estimated investment in tanks is EUR 2, 4 million. This figure could be decreased by about EUR 1 million lowering the possible total investment cost to approximately EUR 13, 1 million. Thirdly if AGC could build its distillation unit close to a geothermal site or build Phase 1 of the project where it would have access to steam from external source. Those cost lowering options are however site dependent on locations as following analysis in later chapter will show.

 Investment estimate are estimated by Icelandic Process Development.  Depreciation is in line with Icelandic laws.

Finance and funding Financing the three phases will be divided between loan capital and equity. In the phase 1 the aim is to get finance from investors up to 75% of the total amount needed for that phase. We assume that loan capital would be 25% of the needed capital and preferably from Godavari as a bridge loan as we have indication about that from their representatives. As the expansion of the factory in phase 2 and 3 occurs AGC factory will be generating profit and revenues and the need for equity capital grows less and loan capital grows cheaper.

Table 10 Shows AGC expected funding

Investment Equity Loan capital Euro % Euro % Euro Phase 1 16.600.000 100% 12.450.000 25% 4.150.000 Phase 2 15.000.000 100% 3.000.000 80% 12.000.000 Phase 3 20.700.000 100% 4.140.000 80% 16.560.000

 Loan capital is expected to be 8 year loans with an interest rate that is 600 points + libor.

Transport In the field of transport it is assumed that the sea freight and land transport that AGC would receive the same price in all locations. We have confirmation from Nesskip that their prices are based on the ton in the cargo but not the distance. We have some conformation from Olíudreifing that those prices we received are valid but in the case of Djúpavogur we only assume that Olíudreifing can offer us the service needed at that location.

Sea transport: Nesskip hf. is an Icelandic company founded in 1974 in Seltjarnarnes and is a leading company in Iceland in ship broking, agency services and consultancy. From the early start the company has been heavily involved in transporting pumice, salt, and fishmeal and fish oil. Today Nesskip hf. is a subsidiary of Wilson ASA in Bergen, Norway (Nesskip hf., 2011). Wilsons ASA focuses on short sea segment within Europe and operates around 112 vessels ranging from 1.500 – 10.000 deadweight tonnage (dwt) (Wilson ASA, 2011). Shipping between Iceland and Europe is vital for our operation and we have had discussions with Neskip who are one of the leading companies in Iceland in leasing bulk ships. We have made an inquiry about what price we could expect for importing glycerin in to Iceland and exporting glycols out of Rotterdam. The price would be 25 Euro’s if we import 3500mts Rotterdam-Akranes in combination with 2500mts export Akranes-Rotterdam.

Land transport:

Olíudreifing ehf. (ODR) was founded in 1994 by Olíuverslun Íslands hf and Olíufélagið hf. to reduce operational cost of distribution. ODR´s main role is to store and distribute petroleum products for the owners and specialized maintenance for service stations and own equipment (ODR, 2011). ODR leases oil tanks in two locations where AGC is currently looking into, in Helguvík and in Húsavík. In discussions between AGC and ODR about possibility of AGC leasing the tanks form ODR for its glycol production, ODR has established price for leasing two 16 ton tanks and one 4 ton tank would cost 36.000 euros per month. AGC needs transportation inland for its liquid products and ODR is ideal candidate as it operations include the whole Iceland. ODR indicates that the average cost per liter would be 0, 0077 euro (1, 18 ikr) in transport and the company would allocate two trucks with trailers to the service.

Table 11 Shows freight cost - logistics:

Description Euro/MT NW-Europe-Iceland, liquid cargo 2515 Trucking - factory to harbor - liquid cargo 7,4216 Trucking & Storage factory to depot - alcohols 16,517 Piping- factory to depot - methane 4018

Sea freight is very sensitive to load size. Freight cost for 1.250 tons cargo lots is 50 Euro/MT where’s freight cost for 25.000 tons lots is 15 Euro/MT.

Energy The power usage of the G2G process can be split into three in the initial phase: a) Electrical usage (H2 production 2/3 of the total): About 35 million kWh or 35 GWh/a

The main advantage of an Icelandic location is the access to energy at favorable prices: The electrical energy is 2 euro cents per kWh (Investum, 2009), but additional price for connection to the electricity grid is due and depends on which transmission company is distributing the electricity to the user’s location. It is possible to make a special arrangement with the Icelandic power companies to buy what is referred to as non-priority electricity. There is a possibility of an occasional cut-off but in our case that is not an issue as the G2G process is not sensitive to electrical cut-offs.

The G2G process is not a large user of electrical power except for the production of hydrogen which is a major utility material in the process. If the hydrogen is produced on site by electrolysis, the electrical power consumption is significant.

The Icelandic electric market is divided into two separate entities by law. The production of electricity is in competitive environment and users can purchase the electricity from many sources. The distribution network is how ever subjected to patent licensing and every user has to connect to local distribution. b) Thermal power usage – equivalent to: About 70 million kWh or 70 GWh/a

By locating the factory close to a source of geothermal heat the thermal energy cost will be lowered considerably compared to what it costs if we use electricity, oil or gas or other combustible materials.

15 Source: Már Gunnarson transport manager at Nesskip -email dated 30.09.2011 16 Source: ODR email to Andri Ottesen 17 Source: ODR email to Andri Ottesen 18 Source: IPD estimates 28 c) Hydrogen power usage:

There is no available source of hydrogen in Iceland in enough quantity to sustain the process of AGC factory for all the three phases, but there have been signs that the well-known international industrial company Kemira is keen on raising a bleaching factory in either Bakki or Grundartangi. One of Kemira by-products is hydrogen in enough quantity for AGC to buy their by-product at a fair price, and therefore lower the cost of electricity.

The table below shows how IPD estimates the energy needs of the AGC factory and gives the reader a clearer view of those three factors that are so important for the operations. The table here is not accurate and does not relate to all the locations, but only to give the reader a notion of how it works.

Table 12 Shows the three main power consumption factors to AGC factory

Phase 1 Phase 2 Phase 3 Total Transmission cost 149.186 285.850 559.180 994.216 Electrical consumption - full capacity: kW 1.180 2.360 4.720 8.260 Number of hours: 8.300 8.300 8.300 Gigawatthours: 9,794 19,588 39,176 68,6 Electrical cost -Euro/kWh 0,023 0,023 0,023 Total cost at full capacity: Euro 374.448 736.374 1.460.228 2.571.050

Thermal power consumption: kW 8.500 17.000 34.000 59.500 Converted to steam equiv. (t/h, 12 bar): t/h 14 28 56 97 Operating hours per year: 8.300 8.300 8.300 Cost of steam equivalent: Euro pr ton 15 6 6 Total thermal power cost at full capacity: Euro 1.731.682 1.385.345 2.770.691 5.887.718

Hydrogen power consumption: Nm3/hour 900 1.800 3.600 6.300 Converted to t/h 0,08 0,16 0,32 0,567 Number of hours 8.300 8.300 8.300 Cost of hydrogen: Euro pr. Ton 700 700 700 Total hydrogen power cost at full capacity: Euro 470.610 941.220 1.882.440 3.294.270

Tank storage rental (Euro Per Year) 200.000 300.000 600.000 1.100.000

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

Key companies in energy production sector Landsvirkjun (LV): Is a private company founded in 1965 and is in full ownership of the Icelandic government and as such operates under specific law dated from the year 1983 (Alþingi, 2009). LV is by far biggest producer of sustainable energy in Iceland with about 75% share of total electric production and with production sites spaced all around the country (Landsvirkjun, 2011). Produced close to 12, 6 terawatt hours of in the year 2010 and is one of 10 largest energy production companies of sustainable energy in Europe (Landsvirkjun (b), 2011, p. 14).

Orkuveita Reykjavíkur (OR): Is a private company in the majority ownership of some the biggest municipal in the southwest peninsular including Reykjavík municipal. The operating area is the Southwest-coast and Western part of Iceland. OR operates four main power plants in Iceland: two geothermal power plants Hellisheiðarvirkjun (213 MW) and Nesjavallavirkjun (120 MW), and two hydropower plants Elliðaárvirkjun (3,2 MW ) and Andakilsárvirkjun (11,4 MW) (Orkuveita Reykjavíkur, 2011).

HS-Orka hf: Is the third largest company in the Icelandic electric production market. The company was founded in 1974 by local municipalities in Reykjanes peninsular. Today HS-Orka is in majority ownership of Magma Energy Sweden AB (75% of shares) and Jarðvarmi (25% of shares). HS-Orka produces electricity from two geothermal sites Svartsengi (75 MW) and Reykjanesvirkjun (100 MW), and produces electricity (4 MW) and steam (12 bar) in Kalka. Kalka is a sustainable incineration that burns waste in special high-temperature furnaces which operates in accordance with EU directives (HS-Orka, 2010).

Key companies in energy distribution sector

Picture 1 Shows Landsnets distribution network in Iceland 2010 (Landsnet, 2011).

In all the locations in this report there is a need for investment in connectors that runs between the AGC factory and the energy distribution companies. These investments may vary between locations but in this report the same assumption will be used for all locations. According to Landsnet information we will use the following evaluation to estimate the cost for connector for the distance of 1 kilometer (Ásmundsson, 2011).

Table 13 Shows the cost of connection with the transmission grid

Connectors to the transmission grid Underground cable 66 kV - 35 MVA 226.415 € primary station 66 kV 522.013 € Total cost 748.428 €

Landsnet: Is a private company in the majority ownership of LV (64, 73% shares) and RARIK (22, 51% shares). The company operates under a concession arrangement and is subject to regulation by the National Energy Authority (Orkustofnun), which determines the revenue framework which the company tariffs are based on. The company was established on the basis of the 2003 Electricity Act. The company owns and operates all of the Icelandic major electricity transmission system and administers its system operations. All power stations with the capacity to produce 7 MW or more are legally obligated to be connected to Landsnet power grid. Landsnet focuses on customers that are large intensive users and small distributers (Landsnet, 2011).

Table 14 Shows Landsnet Transmission charges for intensive users

Phase 1 Phase 2 Phase 3 Tariff Tariff Tariff Delivery Charge 39.029 € €/year 39.029 € 39.029 € 39.029 € Capacity charge 20.650 € €/MW 127.618 € 255.236 € 510.473 € Energy charge 1,045 € €/MWh 53.588 € 107.177 € 214.353 € Ancillary services 0,162 € €/MWh 8.297 € 16.595 € 33.189 € Transmission losses 0,368 € €/MWh 18.872 € 37.745 € 75.489 € Total 247.405 € 455.781 € 872.533 €

The table above shows the traditional tariff for companies that are intensive users.

Rafmagnsveitur ríkisins (RARIK): Is a private company in the ownership of the Icelandic government. The company was established in 1946 with the purpose of developing various power projects throughout Iceland. In 2006 the company was changed to RARIK ltd. and now focuses on distributing electricity to smaller customers. RARIK distribution network has close to 90% share of reach in rural areas in Iceland (RARIK ltd., 2011).

HS-Veitur: Is a private company in the majority ownership of Reykjanesbær (66, 7% of shares), OR (16, 5% of shares) and Hafnarfjarðarbær (15, 4% of shares). The company is the largest distributer in the Reykjanes peninsula, in Árnessýslu and in Vestmannaeyjar. The company was founded in 1974 by local municipalities in Reykjanes peninsular and was part of HS Orka until the new energy laws in 2005 separated them into two companies (HS Veitur, 2011).

As AGC G2G factory fails to reach the requirements of Landsnet of using over10 MW or at least 80 GWh per year in phase 1 in all locations, the factory needs to use small distributers like HS Veitur and RARIK and has to pay additional fees for their service. There is a possibility to connect to Landsnet from the start, but to do so AGC has to reach approximately the capacity of over 10 MW or 80 GWh within 3 years. .

Figure 3 Shows additional cost using small distributors (Landsnet (b), 2011).

Initial cost * Annual percentage * Share in stepped-down cost Surcharge = Energy amount * Energy charge + Power * Power charges

Initial cost Signifies the starting cost on account of voltage step-down, here in Euro

Annual percentage Refers to the percentage of the initial cost (to be collected each year) and other financial cost associated Share in stepped- down voltage cost Amounts to 80% of the stepping-down expense

Energy amount Is the customer’s annual amount of energy, in MWh

Energy charges The charges for energy to power intensive users, according the Landsnet tariff Power Stands for the customer's agreed peak power

Power charges Charges for power to power intensive users, according to Landsnet tariff

By putting in the numbers in the equation we find the Surcharge:

1.273.83519 * 0,08220 * 0,8 46,12% = 51.29421 * 1, 04522 + 6.18023 * 20.65024

By identifying the surcharge it is possible to finalize the model to find the total cost of transmission for the AGC factory. By using the model in table 16 we can establish by some accuracy the final cost.

Table 15 Shows how strain affects transmission cost

Usages Load capacity 6,18 MW Energy 51.294 MWh Utilization 8.300 hrs. ISK/EUR 159,00 ISK kr.

Tariff for intensive users Delivery Charge 39.029 EUR per year Capacity charge 20.650 EUR per MW per year Energy charge 1,04 EUR per MWh Ancillary services 0,1618 EUR per MWh Transmission losses 0,3679 EUR per MWh

Intensive users strain Delivery Charge 0 EUR per year Capacity charge 9.523 EUR per MW per year Energy charge 0,48 EUR per MWh Ancillary services 0,0000 EUR per MWh Transmission losses 0,0000 EUR per MWh

Additional fee Delivery charge 0 EUR Capacity charge 58.851 EUR Energy charge 24.712 EUR Total for transmission 83.564 EUR

19 Source: Guðmundur Ingi Ásmundsson Deputy CEO at Landsnet ,email dated 08.11.2011. Landsnet estimated cost* 20 Source: Guðmundur Ingi Ásmundsson Deputy CEO at Landsnet ,email dated 08.11.2011. 21 Source: IPD estimates 22 Source: Landsnet tariff (Landsnet (b), 2011). 23 Source: IPD estimates 24 Source: Landsnet tariff (Landsnet (b), 2011). 34

Up dated tariff Delivery Charge 39.029 EUR per year Capacity charge 30.173 EUR per MW per year Energy charge 1,53 EUR per MWh Ancillary services 0,1618 EUR per MWh Transmission losses 0,3679 EUR per MWh

Total tariff Delivery charge 39.029 EUR Capacity charge 186.469 EUR Energy charge 78.301 EUR Ancillary services 8.297 EUR Transmission losses 18.872 EUR Total for transmission 330.968 EUR If we compare total cost in phase 1 in table 5 and the total cost in table 6 we can conclude that the strain is increasing the cost by 25, 25%.

Table 16 below shows the basic estimate of the electrical usage in a small scale industrial production unit producing 30.000 tons of glycols and alcohols per annum.

Table 16 Shows Power consumption by electrolyser

Power Consumer/Equipment/device Power Consumption Installed Power

kW kW

Hydrogen electrolyser for a 2 x 480 Nm3/h, 30 tones production capacity 5.000 6.000

Main hydrogen compressor 250 300 Auxiliary compressor 80 100 Vapor compressor(MVR) 300 400 Circulation pump, water removal unit 15 20 Main feed pump 50 30 Cooling water circulation pump 45 60 Distillation tower-1 5 7 Distillation tower-2 20 25 Distillation tower-3 10 15 Distillation tower-4 10 10 Thin film evaporator 40 50 Lights, ventilation etc. 30 40 Various systems 300 400 Office, controls etc. 25 30

Intermediate sum 1.180 1.487

Contingency 10% 618 748,7

Total 6.180 7.487

Total without electrolyser 1.180 1.487 35

The hydrogen production alone consumes about 70% of the total electrical usage in such a plant. In view of this it could be feasible to investigate the possibility of “over the fence” availability of hydrogen in conjunction with the utilization of waste energy.

After the hydro-cracking process we need to separate the different chemical compounds made during the process. Separation is almost exclusively realized by evaporation, distillation, stripping and other methods, using steam or hot fluid stream as energy carrier.

In view of this it would be very beneficial, cost-wise, to have access to cost effective thermal energy. Geothermal steam could be one of those options and as the distillation tasks can make use of tempered energy stream of below 180°C. Most geothermal fields of Iceland would be suitable for this purpose. There is however a tradeoff, there are not many geothermal fields in Iceland that are situated close to major harbors unless in the Reykjanes/Keflavik area. Due to this the raw material and the finished product have to be trucked between the harbor and the factory. Other sites like Þeistareykir/Norðurþing and Bjarnarflag/Norðurþing, Hellisheiði can also be considered for potential sites.

Other energy streams could also well be utilized like steam from steam boilers or low tempered waste energy from combustion power plants if a location outside Iceland were to come into consideration. Also if a cost effective biomass is available, its combustion energy could be used for steam production. Steam is the preferred energy transforming carrier.

Further energy considerations are left to a specific site feasibility study.

The following table shows an overview of the estimated usage of thermal energy in the G2G process plant.

Table 17 Shows thermal energy usage estimate for a production capacity of 30.000 ton per year.

Steady State Consumption Installed Capacity

kW kW Steam or thermal power consumer Feed-pre heater 350 455 Alcohol column 300 390 Water removal – glycol concentrator 1.200 1560 Glycol evaporator 600 780 Water stripper 200 260 Main product splitter 3.500 4550 Ethylene glycol concentrator 300 390 Glycerin evaporator 100 130 Diverse heaters 840 1092

Intermediate sum 7.390 9.607

Contingency 15% 1.109 1.441

Total 8.499 11.048

Total steam equivalent[t/h, 12 bar] 13,9 18,1

The energy cost for a comparable factory in Europe is likely to be EUR 2-4 million higher than in the Icelandic case. The location cost for Iceland in terms of transport from/back to Europe is estimated EUR 1, 5 million in comparison.

Electricity prices in Europe the first half of 2011 in €/MWh 200,00 180,00 160,00 140,00 120,00 100,00 80,00 60,00 40,00 20,00

0,00

…

Italy

Spain

Malta

Latvia

France

Turkey

Cyprus

Poland

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Greece

Croatia

Finland

Estonia

Norway

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Slovakia

Slovenia

Hungary

Portugal

Romania

Denmark

Germany

Lithuania

Bosnia Bosnia and

Netherlands

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Euro area area (5) Euro Czech Republic Czech United Kingdom United

Figure 4 Shows annual consumption in Europe: 500 MWh < consumption < 2 000 MWh; excluding VAT (Eurostat, 2011). The location advantage for Iceland is therefore Euro 1, 0- 2, 0 million taken into consideration lower construction, labor and other site benefits. Common electrical power prices for industrial units in Europe are in the range from € 61-180 MW per hour. Furthermore steam costs if produced on site in a steam boiler, using natural gas as a feedstock, are estimated to be € 25-30/ton steam (12 bar).

As has been explained the energy cost is probably one of the most important factors in deciding to invest. There are also other factors worth looking into including:  Devaluation of the ISK following the banking crisis in 2008 has improved the environment of all export oriented industries in Iceland.  Wages and salaries are much lower in Iceland than elsewhere in W-Europe.  A stable and well educated workforce.  Corporate tax is currently 20 % (2011).  No restrictions on currency movements on new investments.  Located between the US and the European market.

5. Helguvík Helguvík is a part of Reykjanesbæ municipal on the south-west peninsular of Iceland. The municipal was formed in 1994 when Keflavík, Njarðvík and Hafnir amalgamated into one municipal. Helguvík is on the outskirt of Keflavík from the north site. In Reykjanesbær there are currently 13 thousand inhabitants where the main occupation is in the fishing industry and in the services sector mainly around Keflavik airport (Reykjanesbær, 2011).

Helguvíkurhöfn: Length of pier is 150 meters and maximum length of overall allowed ship is 200 meters. Depth is 10 meters. Distance from center of Reykjanesbær is 4 kilometers (Reykjaneshöfn, 2011).

About the project in Helguvík

Among the advantages of locating a glycol plant in Helguvík is an access to a favorable industrial site close to one of the deepest harbor in Iceland. There are many advantages to raising AGC factory in Helguvík, excellent roads and within 5

Picture 2 Shows a possible location[X] for a glycol producing plant in kilometers to International Helguvík Airport in Keflavík. Furthermore, due to the recent announce of the execution of a silicon project in Helguvík of “The Icelandic Silicon Corporation” there will be a potential for a synergy through a thermal source. The Silicon operation will start by middle of year 2013 and will deliver excess energy in the form of hot water and economical supply of steam from their waste energy recovery system.

One of the main utility parameter is steam and will therefore be more easily available as “steam-over the fence”. This particular site gives a possibility for cheap construction lot for the erecting of plant systems and product storages within several hundreds of meters from harbor dock, which enables the pumping of both feedstock and products via pipes. Raw material storage can be rented from an existing tank terminal, which enables economical sea 38 transportation in larger lots. The distance from Icelandic Silicon Corporation site is about 400 meters which is considered to be the length of a steam pipeline connecting those two with thermal energy service also has the potential of offering and the sharing of some other utilities (AGC ehf, 2011). Helguvík has the potential to develop further and in future the municipal hopes that sustainable industry will be part of the economy and possible future music will be advanced Chemical Park in Helguvík. At this moment the process has already begun in Helguvík, as the process of assessment of environmental effects has already begun and evaluation is expected soon.

Investment in Helguvík In addition to all needed buildings and machines that were identified in the initial IPD estimated valuation. There is a shortage of tanks for the processed products and by IPD estimate there is need for one tank at the size of 4000m3, another tank at the size of 2500m3 and finally one tank the size of 1000m3. The increases the investments are needed in the beginning of the project.

Table 18 Shows AGC Investment estimate at Helguvík- phase 1, 2 and 3

Phase 1 - 30.000 tons capacity: Euro Depreciation Connector to Landsnet 748.428 4% 10,0% Design, engineering, construction management: 1.500.000 8% 10,0% Land, building and premises: 1.200.000 7% 3,0% Storage tanks: 1.902.995 11% 10,0% Hydrogen electrolyser: 3.000.000 17% 12,5% Evaporators and distillation: 3.800.000 21% 10,0% Other fixtures and fittings: 3.200.000 18% 10,0% Contingency: 2.500.000 14% 10,0% Total: -10 % /+35% accuracy 17.851.423 100% 1.701.300 annually Year 0-2 Phase 2 - 35.000 tons capacity: Total investment: -10 % /+35% accuracy 15.000.000 9,5% Year 3-4 Phase 3 - 60.000 tons capacity: Total investment: -15/+-50 % accuracy 19.900.000 9,5% Year 5-6

The additional change of extra tanks does raise the volume of capital needed. The initial expected investment had been calculated by IPD as EUR 16. 6 million and there of equity need expected to be EUR 12.450 million, and loan capital EUR 4.150 million. The new estimates show however that investment needed is EUR 17.851 million. With this new

39 information the equity needed is EUR 13.388 million and to increase the loan capital to EUR 4.462 million.

Table 19 Shows IPD estimated investment, equity and loan capital structure at Helguvík

Investment Equity Loan capital Euro % Euro % Euro Phase 1 17.851.423 100% 13.388.567 25% 4.462.856 Phase 2 15.000.000 100% 3.000.000 80% 12.000.000 Phase 3 19.900.000 100% 3.980.000 80% 15.920.000

Pro forma financials In the table below are major assumptions that are made for this profitability analysis, as we gather all possible information to show feasibility. We assume that we can connect to Landsnet grid right at the beginning of phase 1 and will build phase 2 within those 3 years that are required by law of every client that Landsnet has. By that AGC factory will only have to pay surcharge for the first three years and after that only the tariffs that are obligated, so transmission cost will decrease sufficiently over the projected period.

Table 20 Shows financial assumptions in the Helguvík project

Parameter Units Phase 1 Phase 2 Phase 3 Electrical cost Euro/KWh 0,02 0,02 0,02 Cost of steam equivalent Euro/ton 4,00 4,00 4,00 Crude Glycerin Euro/ton 280,00 280,00 280,00 Propylene glycol Euro/ton 1.150,00 1.150,00 1.150,00 Ethylene glycol Euro/ton 850,00 850,00 850,00 Ethanol Euro/ton 700,00 700,00 700,00 Methanol Euro/ton 700,00 700,00 700,00

As previously mentioned above there is a possibility to buy steam from Icelandic Silicone Corporation from 2013. But to get enough steam earlier for the first phase planed AGC would have to buy steam from two companies, Kalka and Síldarvinnslan hf. From Kalka we assume that AGC would have to buy the steam at the cost of EUR 4 per ton and from Síldarvinnslan hf. the cost would be EUR 15 per ton. In our estimate the average price would be around EUR 10 when considering timing and the availability of steam from those two companies. In phase 2 and 3 AGC expects the price form Icelandic Silicone Corporation to be around EUR 4 per ton. As the project has been delayed from the originals plans the assumptions here is that all steam is bought from ISC at 4 EUR per ton.

Table 21 Shows power consumption at Helguvík project

Phase 1 Phase 2 Phase 3 Total Transmission cost 330.968 455.781 872.533 1.659.283 Electrical consumption(w.electrolyzer) - full capacity: kW 6.180 12.360 24.720 43.260 Number of hours: 8.300 8.300 8.300 Gigawatthours: 51,3 102,6 205,2 359,1 Electrical cost -Euro/kWh 0,023 0,023 0,023 Total cost at full capacity: Euro 1.510.730 2.815.305 5.591.581 9.917.617

Thermal power consumption: kW 8.500 17.000 34.000 59.500 Converted to steam equiv. (t/h, 12 bar): t/h 14 28 56 97 Operating hours per year: 8.300 8.300 8.300 Cost of steam equivalent: Euro pr ton 4 4 4 Total thermal power cost at full capacity: Euro 461.782 923.564 1.847.127 3.232.473

Tank storage rental (Euro Per Year) 120.000 240.000 480.000 840.000

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

Summary of projected financial return By calculating the assumptions from the pro forma figure and intertwining them with IPD other estimations, we have opportunity to estimate the profit and loss for the first 6 years or until AGC factory has the capabilities to reach full productions capacity.

Table 22 Shows estimated profit and loss from Helguvík project

EUR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total sales - CIF: 33.105.000 33.105.000 71.727.500 71.727.500 137.937.500 137.937.500

Marketing cost: 1.324.200 1.324.200 2.869.100 2.869.100 5.517.500 5.517.500

Total sales, net 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Variable cost:

Cost of raw material: 11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923

Sea freight cost: 1.653.301 1.653.301 2.865.722 2.865.722 4.822.128 4.392.870

Product trucking cost: 199.781 199.781 432.858 432.858 832.419 832.419 Electrical cost: 1.510.730 1.510.730 4.326.035 4.326.035 9.917.617 9.917.617

Thermal energy cost: 461.782 461.782 1.385.345 1.385.345 3.232.473 3.232.473

Catalyst cost 1.648.352 1.648.352 3.571.429 3.571.429 6.868.132 6.868.132

Royalty: 317.808 317.808 688.584 688.584 1.324.200 1.324.200

17.330.215 17.330.215 38.269.973 38.269.973 75.073.892 74.644.633

52% 52% 53% 53% 54% 54%

Fixed cost:

Salaries and wages 722.775 722.775 1.001.625 1.001.625 1.252.425 1.252.425

Maintenance 714.057 714.057 1.314.057 1.314.057 2.110.057 2.110.057

Insurance 133.886 133.886 246.386 246.386 395.636 395.636

Storage Tank Rental 120.000 120.000 240.000 240.000 480.000 480.000

Other fixed cost 414.629 414.629 627.209 627.209 904.819 904.819

2.105.346 2.105.346 3.429.276 3.429.276 5.142.936 5.142.936

Total costs 19.435.561 19.435.561 41.699.249 41.699.249 80.216.828 79.787.569

6% 6% 5% 5% 4% 4%

EBITDA: 12.345.239 12.345.239 27.159.151 27.159.151 52.203.172 52.632.431

37% 37% 38% 38% 38% 38%

Depreciation 1.701.300 1.701.300 3.130.849 3.130.849 5.027.385 5.027.385

5% 5% 4% 4% 4% 4%

Financial items: -210.551 22.695 -414.778 158.705 -123.504 991.375

Profit before tax: 10.433.389 10.666.635 23.613.524 24.187.007 47.052.284 48.596.421

Used deployment cost against taxes/ rapid depreciation

32% 32% 33% 34% 34% 35%

Corporate tax (20%): 20% 521.669 853.331 1.889.082 2.418.701 4.705.228 4.859.642

Profit/loss: 9.911.719 9.813.304 21.724.442 21.768.306 42.347.055 43.736.779

30% 30% 30% 30% 31% 32%

ROS 31,2% 30,9% 31,5% 31,6% 32,0% 33,0%

As seen in this prediction the project indicates profit from the first year of operations and profit is expected the following years.

Profitability analyses At Helguvík project we will be using the discount factor of 15% in expected return of net present value (NPV), which gives us EUR 89.427.385 million over 10 years period and internal rate of return (IRR) of 86,2%.

Table 23 Shows estimated IRR and NPV from Helguvík project

0-1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Revenue: 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Operational Cost: 19.435.561 19.435.561 41.699.249 41.699.249 80.216.828 79.787.569

Share capital: 1000000 14.388.567 14.388.567 17.388.567 17.388.567 21.368.567 21.368.567 21.368.567

Investment: -1000000 -17.851.423 -15.000.000 -19.900.000 Loan capital: 4.462.856 12.000.000 15.920.000 Operational Capital Need 100000 100.000

New Equity needed -1000000 -13.288.567 0 -3.000.000 0 -3.980.000 0 0

Income: 26.484.000 31.780.800 62.678.800 68.858.400 121.826.400 132.420.000

Operational cost: 900000 -17.815.931 -19.435.561 -39.843.942 -41.699.249 -77.007.029 -79.823.341

Cash Flow from Operations 900000 8.668.069 12.345.239 22.834.858 27.159.151 44.819.371 52.596.659

Equity Inflow : -1000000 -13.288.567 -3.000.000 -3.980.000

Principal Payment of loans: 0 -594.540 -594.540 -2.193.176 -2.193.176 -4.314.033 -4.314.033

Financial items: 0 -210.551 22.695 -414.778 158.705 -123.504 991.375

Corporate tax: -521.669 -853.331 -1.889.082 -2.418.701 -4.705.228 Free Cash flow to equity -1000000 -13.288.567 7.862.978 8.251.725 19.373.573 19.255.598 37.963.133 44.568.773 280

IRR 86,2%

NPV 89.427.385 15%

Cash at beginning of period 100.000 100.000 7.962.978 19.214.703 38.588.276 61.823.874 99.787.008

Cast at end of period 100.000 7.962.978 19.214.703 38.588.276 61.823.874 99.787.008 144.355.781 Interest income: 82.914 279.477 594.407 1.032.572 1.661.899 2.510.602

Interest paid on long term loans: -293.465 -256.782 -1.009.185 -873.866 -1.785.402 -1.519.227 Finical items - total: -210.551 22.695 -414.778 158.705 -123.504 991.375

6. Grundartangi Grundartangi is located in Hvalfjarðarsveit in Hvalfjörður, which is in Faxaflóa area on the west coast of Iceland, within 49 km from Reykjavík. Grundartangi is an industrial site that has been developing as a part of Faxaflóahafnir (Associated Icelandic Ports (AIP)), which is an independently operated company in ownership of some of the largest municipals on the southwest coast, one of which being the City of Reykjavík. The landmass is a former agricultural field and the total area is about 439 hectares, of which some 311 hectares may be developed as building sites from now, and 50 hectares can be additionally be created by landfills with ease. The port was opened in 1978 to serve the Elkem Island which is a ferrosilicon plant and since then the site has grown considerably. In 1998 a new aluminum smelter was launched by Norðurál at the site and in 2006 it was enlarged further. According to AIP four sites have been allocated for smaller companies, but remaining area for further development is around 160 hectares (AIP, 2011).

The harbor facilities:

The harbor was open in 1978 with the arrival of Elkem Island. Since 1978 the quay has gone through two enlargements, first in 1998 and the second in 2006. The total length of the quay is now 670 meters and the depth is from 10 to 14 meters (AIP, 2011).

Road connections:

The industrial site at Grundartangi is very close to the national highway and within 49 kilometers distance from Reykjavík which makes this site very attractive considering that available work force is within 40 minutes’ drive from location. Another noteworthy factor is the short distance between Grundartangi and Keflavík International Airport which is about 90 kilometers (AIP, 2011).

Kemira: Was founded Finland in year 1920 as a state own chemical plant that was mainly producing sulphuric acid. In the years around 1950 the company began to move towards production of industrial chemicals and began expanding their production with new chemical factories around Finland. Kemira began operating in the international level in the beginning of the 1960s and has expanded increasingly since then. Kemira was changed in 1994 and today Kemira is a private company

44 listed in the Helsinki Stock Exchange (since 1994) as the state of Finland is the major shareholder with about 53, 8% of the company shares. Kemira has long experience and state- of-the-art knowledge about bleaching additives used in chemical and mechanical pulp production and in deinked pulp bleaching. The optimized use and effectiveness of these chemicals is always tested at each pulp process (Kemira, 2011).

Kemira is planning to raise a bleaching chemical factory in Iceland and is looking at two locations, Grundartangi and Bakki. Grundartangi is considered more favorable site of the two because it is has more basic infrastructure in place and is more advanced as an industry site. Kemira does not have to undertake environmental assessment for raising their factory either in Bakki or in Grundartangi. But at Grundartangi the main problem for Kemira is the lack of electricity on the south and west coast of Iceland. There might be a solution to this problem as currently HS Orka and Norðurál have a case in the arbitral tribunal in Sweden (where Magma Energy the majority owner of HS Orka has the address for service) about agreement HS Orka selling Norðurál electricity in Helguvík. If HS Orka wins this case in Sweden than the company has enough electricity for Kemira, but HS Orka loses this case at Swedish court than Kemira is forced to move its focus to Bakki.

Investment in Grundartangi There are few benefits that are gained by locating AGC factory at Grundartangi if Kemira has the opportunity build their factory at that location. By having Kemira operations at Grundartangi there is no need for hydrogen electrolyser and that does lower the investment cost significantly at phases. However the location does require additional investment for building tanks for storages of raw material and products.

Table 24 Shows AGC Investment estimate at Grundartanga- phase 1, 2 and 3

Phase 1 - 30.000 tons capacity: Euro Depreciation Connector to RARIK 748.428 5% 10,0% Design, engineering, construction management: 1.500.000 9% 10,0% Land, building and premises: 1.200.000 8% 3,0% Storage tanks: 2.917.926 18% 10,0% Hydrogen electrolyser: 0 0% 12,5% Evaporators and distillation: 3.800.000 24% 10,0% Other fixtures and fittings: 3.200.000 20% 10,0% Contingency: 2.500.000 16% 10,0% Total: -10 % /+35% accuracy 15.866.354 100% 1.502.635 annually Year 0-2

Phase 2 - 35.000 tons capacity: Total investment: -10 % /+35% accuracy 13.000.000 9,5% Year 3-4 Phase 3 - 60.000 tons capacity: Total investment: -15/+-50 % accuracy 17.900.000 9,5% Year 5-6

But initial expected investment had been calculated by IPD as EUR 16. 6 million and there of equity need is expected to be EUR 12.450 million, and loan capital EUR 4.150 million. The new estimates show however that investment needed is EUR 15.866 million. With this new information the equity needed is EUR 11.399 million and to increase the loan capital to EUR 3.966 million. Table 25 Shows IPD estimated investment, equity and loan capital structure at Grundartangi

Investment Equity Loan capital Euro % Euro % Euro Phase 1 15.866.354 100% 11.899.765 25% 3.966.588 Phase 2 13.000.000 100% 2.600.000 80% 10.400.000 Phase 3 17.900.000 100% 3.580.000 80% 14.320.000 Pro forma financials In the table below are major assumptions that are made for this profitability analysis. The following assumptions are based on the presence of Kemira at that location; otherwise the project would not be of any benefits at all to other locations and there for of no interest either IPD or AGC.

Table 26 Shows financial assumptions in the Grundartangi project

Parameter Units Phase 1 Phase 2 Phase 3 Electrical cost Euro/KWh 0,023 0,023 0,023 Cost of steam equivalent Euro/ton 15 6 6 Crude Glycerin Euro/ton 280 280 280 Propylene glycol Euro/ton 1150 1150 1150 Ethylene glycol Euro/ton 850 850 850 Ethanol Euro/ton 700 700 700 Methanol Euro/ton 700 700 700

With Kemira operating at Grundartangi the possibility that AGC factory could buy all or part of the hydrogen that Kemira produces as a byproduct.

As shown in table above the investment at Grundartangi is little bit lower than originally expected in AGC plans and this is due to the fact that no hydrogen electrolyser is needed at the location and that availability of hydrogen from Kemira factory close to AGC factory. Kemira is expected to produce hydrogen in the quantity of at least 4000m3 per hour and that is more than enough for AGC factory needs. IPD and AGC representatives have informally discussed with Kemira representatives about the possibility of selling hydrogen to AGC factory and the indications have been quite positive. Kemira is willing to sell AGC their byproduct hydrogen at the price of EUR 700 per ton if AGC factory is close to Kemira production.

Table 27 Shows expected power consumption of AGC factory

Phase 1 Phase 2 Phase 3 Total Transmission cost 149.186 285.850 559.180 994.216 Electrical consumption(w.electrolyzer) - full capacity: kW 1.180 2.360 4.720 8.260 Number of hours: 8.300 8.300 8.300 Gigawatthours: 9,794 19,588 39,176 68,6 Electrical cost -Euro/kWh 0,023 0,023 0,023 Total cost at full capacity: Euro 374.448 736.374 1.460.228 2.571.050

Hydrogen power consumption: Nm3/h 900 1.800 3.600 6.300 Converted to t/h 0,08 0,16 0,32 0,567 Number of hours 8.300 8.300 8.300 Cost of hydrogen: Euro pr. Ton 700 700 700 Total hydrogen power cost at full capacity: Euro 470.610 941.220 1.882.440 3.294.270

Tank storage rental (Euro Per Year) 0 0 0 0

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

There is no available steam in any form at Grundartangi at this moment, but for the first phase of the AGC factory there will be enough hydrogen production from Kemira factory. IPD estimates that Kemira is releasing 4000m3 of hydrogen per hour and that would be sufficient to use 3000m3 of hydrogen to produce steam and use 1000m3 of hydrogen in the reaction to the glycol. The price for hydrogen produced steam is expected to be EUR 15 per ton. For the second and third phase calls for bigger solution and the possibility is that Elkem Ísland does produce enough heat in their production but for AGC factory there would have to be added steam boilers to Elkem factory. If Elkem would build the steam boilers at their premises as IPD expects the price of steam per ton would around EUR 6 so that Elkem would be able to receive adequate revenues from their investment in those steam boilers.

Summary of projected financial return By calculating the assumptions from the pro forma figure and intertwining them with IPD other estimations, we have the opportunity to estimate the profit and loss for the first 6 years or until AGC factory has the capabilities to reach full productions capacity.

Table 28 Shows estimated profit and loss from Grundartangi project

EUR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total sales - CIF: 33.105.000 33.105.000 71.727.500 71.727.500 137.937.500 137.937.500

Marketing cost: 1.324.200 1.324.200 2.869.100 2.869.100 5.517.500 5.517.500

Total sales, net 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Variable cost:

Cost of raw material: 11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923

Sea freight cost: 1.701.191 1.701.191 2.948.731 2.948.731 4.961.807 4.532.548

Product trucking cost: 213.994 213.994 463.654 463.654 891.643 891.643 Electrical cost: 374.448 374.448 1.110.822 1.110.822 2.571.050 2.571.050

Hydrogen cost 470.610 470.610 1.411.830 1.411.830 3.294.270 3.294.270

Thermal energy cost: 1.731.682 1.731.682 3.117.027 3.117.027 5.887.718 5.887.718

Catalyst cost 1.648.352 1.648.352 3.571.429 3.571.429 6.868.132 6.868.132

Royalty: 317.808 317.808 688.584 688.584 1.324.200 1.324.200

17.996.546 17.996.546 38.312.077 38.312.077 73.875.743 73.446.484

54% 54% 53% 53% 54% 53%

Fixed cost:

Salaries and wages 722.775 722.775 1.001.625 1.001.625 1.252.425 1.252.425

Maintenance 634.654 634.654 1.154.654 1.154.654 1.870.654 1.870.654

Insurance 118.998 118.998 216.498 216.498 350.748 350.748

Storage Tank Rental 0 0 0 0 0 0

Other fixed cost 395.770 395.770 589.350 589.350 847.960 847.960

1.872.197 1.872.197 2.962.127 2.962.127 4.321.787 4.321.787

Total costs 19.868.743 19.868.743 41.274.204 41.274.204 78.197.530 77.768.271

6% 6% 4% 4% 3% 3%

EBITDA: 11.912.057 11.912.057 27.584.196 27.584.196 54.222.470 54.651.729

36% 36% 38% 38% 39% 40%

Depreciation 1.502.635 1.502.635 2.733.811 2.733.811 4.429.044 4.429.044

5% 5% 4% 4% 3% 3%

Financial items: -181.017 41.575 -290.277 281.669 121.177 1.257.300

Profit before tax: 10.228.404 10.450.996 24.560.109 25.132.055 49.914.603 51.479.985

Used deployment cost against taxes/ rapid depreciation

31% 32% 34% 35% 36% 37%

Corporate tax (20%): 20% 511.420 836.080 1.964.809 2.513.205 4.991.460 5.147.998

Profit/loss: 9.716.984 9.614.917 22.595.300 22.618.849 44.923.143 46.331.986

29% 29% 32% 32% 33% 34%

As seen on table above this is a very profitable project and shows very good profit for the first 6 years of operations, and the possibly to increase further in the next 10 years or so.

Profitability analyses At Grundartangi project the discount factor of 15% is used in expected return of net present value (NPV), which gives us EUR 95.347.804 million over 10 years period and internal rate of return (IRR) of 93,2%.

Table 29 Shows estimated IRR and NPV from Grundartangi project

0-1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Revenue: 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Operational Cost: 19.868.743 19.868.743 41.274.204 41.274.204 78.197.530 77.768.271

Share capital: 1000000 12.899.765 12.899.765 15.499.765 15.499.765 19.079.765 19.079.765 19.079.765

Investment: -1000000 -15.866.354 -13.000.000 -17.900.000

Loan capital: 3.966.588 10.400.000 14.320.000

Operational Capital Need 100000 100.000

New Equity needed -1000000 -11.799.765 0 -2.600.000 0 -3.580.000 0 0

Income: 26.484.000 31.780.800 62.678.800 68.858.400 121.826.400 132.420.000

Operational cost: 900000 -18.213.014 -19.868.743 -39.490.416 -41.274.204 -75.120.586 -77.804.043

Cash Flow from Operations 900000 8.270.986 11.912.057 23.188.384 27.584.196 46.705.814 54.615.957

Equity Inflow : -1000000 -11.799.765 -2.600.000 -3.580.000

Principal Payment of loans: 0 -528.428 -528.428 -1.913.912 -1.913.912 -3.821.617 -3.821.617

Financial items: 0 -181.017 41.575 -290.277 281.669 121.177 1.257.300

Corporate tax: -511.420 -836.080 -1.964.809 -2.513.205 -4.991.460

Free Cash flow to equity -1000000 -11.799.765 7.561.541 8.313.784 20.148.116 20.407.145 40.492.168 47.060.180

280

IRR 93,2%

NPV 95.347.804 15%

Cash at beginning of period 100.000 100.000 7.661.541 18.575.325 38.723.441 62.710.585 103.202.753

Cast at end of period 100.000 7.661.541 18.575.325 38.723.441 62.710.585 103.202.753 150.262.933

Interest income: 79.815 269.802 589.222 1.043.080 1.706.142 2.606.472

Interest paid on long term loans: -260.832 -228.228 -879.499 -761.411 -1.584.966 -1.349.172

Finical items - total: -181.017 41.575 -290.277 281.669 121.177 1.257.300

7. Bjarnarflag Bjarnarflag is in Norðurþing municipality on the north-east coast of Iceland, Landsvirkjun and the Icelandic government, where the industrial ministry and Invest in Iceland agency are the most active players. Norðurþing is in Northeast Iceland, a large area stretching from the north east coast into the glaciers in the central highlands. Norðurþing Municipality was formed in a merger of four small municipalities in the election year of 2006 (Norðurþing, 2011). Húsavík (population of 2.229) is the largest town in Norðurþing with about 80% of population of the municipal and is mostly famous for tourism (whale watching) and services. Previously it was known for its fishing industry where the main source of employment in Húsavík lay along other light

Picture 3 Norðurþing municipal industry and services to surrounding farmers in the Source:Invalid source specified.. area. The total population in Norðurþing is 2.926 and has been decreasing about 16% since 1990 (Hagstofa Íslands, 2011). The new town council of Norðurþing municipality which was elected in 2010 election, have been persistently lobbying for developing future industry cites in Bakki area. The town council and Atvinnuþróunarfélag Þingeyjinga (AÞ) (e. North-East Iceland Development Agency) have been following up every lead to gain fortune.

There has been much speculation about the future of this site from politicians and media alike but new arriving industries have been put under pressure to build up their businesses by the Icelandic government, Norðurþing municipal and Landsvirkjun to use the geothermal energy that is available in Bjarnarflag, Þeistareykir and Krafla. At least 10 interested parties of power intensive users are viewing Bakki as a possible site for their operation according to Edvarð Guðnason (Guðnason, 2011) at Landsvirkjun.

Roads

The significance of roads is crucial to the project of Bjarnarflag as the distance between Bjarnarflag and Húsavík is considerable higher than in other locations that are investigated in this report. As does the fact that it may be problematic to interest skilled and educated work

51 force to work at location such as Bjarnarflag due to the length of distance from populated areas such as Húsavík or Akureyri.

The highway nr.87 is named Kísilvegur and connects Húsavík and Mývatnssveit. A private road in the ownership of Landsvirkjun links highway nr.87 and Krafla area. The distance between Húsavík (Bakki) and Bjarnarflag is about 69 kilometers and Vegagerðin provides snowplowing at least two days per week during winter time.

A gravel road is currently under construction between Húsavík and Þeistareykjum and future plans are that new layer of paved surface will come around when decisions are made about what kind of services level the area will need from Vegagerðinn. It is estimated that the road will be close to 28 kilometers (Reynisson, 2011).

A road tunnel in the area between Akureyri and Húsavík are currently in the process of funding constructed at Vaðlaheiði. This road tunnel will shorten the road between Akureyri and Húsavík considerably, taking the road from 91 km to 75 km or 16 km, but more importantly the road tunnel will take out the equation of difficulty of hazardous winter weather that frequently accurse the area and will shorten the time of traveling by 10 minutes and there for making traveling between Akureyri and Húsavík take around 51 minutes, an improvement of 10 minutes. The current estimate of increased traffic between Akureyri and Húsavík due to this project is around 21% and it will strengthen Akureyri as a leading town in the northern part of Iceland. Full construction of Vaðlaheiðargöng is expected to take at least 3 years from now. (Reinhardsson, 2006, pp. 2 - 8).

Harbor

The harbor facilities are good at Húsavík. The depth at the harbor is 10 meters and the longest peer is 130 meters, with future possibility to increase the depth to 12 meters and the length of the peer to 180 meters so up to 40.000 ton cargo/bulk ships can dock according to managing director of NEIDA (Reynisson, 2011).

Labor force

In our estimate we presume that the labor force that is available to work at the G2G factory would be mostly based on the local residents in the area of Reykjahlíð. Those residents at Reykjahlíð used to formed the labor source in Silicon factory at Mývatn but where closed in 2004. 52

Investment in Bjarnarflag This site is located inland of Norðurþing and can easily be described as a “greenfield” project as there are no facilities or infrastructure to add to the factory. But locating close to Bjarnarflag power plant gives AGC factory lower cost of energy as the closeness eliminates transmissions fees to Landsnet or the small distributors in the area. It also gives AGC opportunity to use otherwise unused steam from the power plant and as well as hydrogen which is expected to be around 1100m3 at the site. The investment at Bjarnarflag is expected to be lower in the phase 1 beginning because of availability of hydrogen, but the amount of hydrogen was not expected to be enough quantity for phase 2 and 3. However today it is expected to have enough hydrogen for phase 2 and 3 as well. There for the expected investment cost of EUR 2 million in phase 2 and EUR 4 million in phase 3 are withdrawn from our calculation. AGC needs to invest in connectors between the factory and Bjarnarflag power plant and the cost is expected to be around EUR 748. 428.

Table 30 Shows AGC Investment estimate at Bjarnarflagi- phase 1, 2 and 3

Phase 1 - 30.000 tons capacity: Euro Depreciation Connectors to Bjarnarflag power plant 748.428 5% 10% Design, engineering, construction management: 1.500.000 10% 10,0% Land, building and premises: 1.000.000 7% 3,0% Storage tanks: 2.537.327 17% 10,0% Hydrogen electrolyser: 0 0% 12,5% Evaporators and distillation: 3.800.000 25% 10,0% Other fixtures and fittings: 3.200.000 21% 10,0% Contingency: 2.500.000 16% 10,0% Total: -10 % /+35% accuracy 15.285.755 100% 2.132.160 annually Year 0-2 Phase 2 - 35.000 tons capacity: Total investment: -10 % /+35% accuracy 16.000.000 13,9% Year 3-4 Phase 3 - 60.000 tons capacity: Total investment: -15/+-50 % accuracy 17.900.000 13,9% Year 5-6

AGC needs to build 2 extra storage tanks at the size of 5000m3 at the facilities in Bjarnarflag and rent some old storage tanks in Húsavík for both glycerin and the glycols. The investment at Bjarnarflag is expected to be around EUR 15.285 million, there of EUR 11.464 million in equity and further EUR 3.821 million in loan capital.

Table 31 Shows IPD estimated investment, equity and loan capital structure at Bjarnarflag

Investment Equity Loan capital Euro % Euro % Euro Phase 1 15.285.755 100% 11.464.316 25% 3.821.439 Phase 2 16.000.000 100% 3.200.000 80% 12.800.000 Phase 3 17.900.000 100% 3.580.000 80% 14.320.000

Pro forma financials In the table below there are major assumptions that are made for this profitability analysis. The following assumptions are based on the opportunity to connect to Bjarnarflag power plant and be able to retain the resources that the power plant is producing. Bjarnarflag is operational power plant and there for has advantage of Þeistárreykir which is not operational and is still under construction.

Table 32 Shows financial assumptions in the Bjarnarflag project

Parameter Units Phase 1 Phase 2 Phase 3 Electrical cost Euro/KWh 0,023 0,023 0,023 Cost of steam equivalent Euro/ton 1,25 1,25 1,25 Crude Glycerin Euro/ton 280 280 280 Propylene glycol Euro/ton 1150 1150 1150 Ethylene glycol Euro/ton 850 850 850 Ethanol Euro/ton 700 700 700 Methanol Euro/ton 700 700 700

There are advantages of siting AGC factory at Bjarnarflag are very interesting when considering the elements of low cost of electricity, steam and hydrogen are realized as seen in table 33.

Table 33 Shows estimated power consumption at Bjarnarflag

Phase 1 Phase 2 Phase 3 Total Electrical consumption(w.electrolyzer) - full capacity: kW 1.180 7.360 19.720 28.260 Number of hours: 8.300 8.300 8.300 Gigawatthours: 9,8 61,1 163,7 234,6 Electrical cost -Euro/kWh 0,023 0,023 0,023 Total cost at full capacity: Euro 225.262 1.405.024 3.764.548 5.394.834

Thermal power consumption: kW 8.500 17.000 34.000 59.500 Converted to steam equiv. (t/h, 12 bar): t/h 14 28 56 97 Operating hours per year: 8.300 8.300 8.300 Cost of steam equivalent: Euro pr ton 1,25 1,25 1,25 Total thermal power cost at full capacity: Euro 144.307 288.614 577.227 1.010.148

Tank storage rental (Euro Per Year) 432.000 432.000 432.000 1.296.000

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

In this estimate the hydrogen process cost is considered to be mainly in equipment to refine the hydrogen, and no additional investment would be needed and other than already stated in the investment, but cost of purifying the hydrogen is estimated by IPD to be around 700 per ton.

Transport

Because of Bjarnarflag location extra transportation cost is expected. The table below shows the expected cost of transportation between Húsavík and Bjarnarflag where the price is expected to be around EUR 7, 42 per ton. There are two roads available for trucking between Húsavík and Bjarnarflag. The main road is Kísilvegur which is operational about 75% of the year but has limitations during the harsh winters and therefore forces the trucks with trailers to use Reykjadalsvegur which is about 20 kilometers longer than Kísilvegur.

Table 34 Shows trucking cost expected between Húsavík and Bjarnarflag

Phase 1 Phase 2 Phase 3 Glycerin 41,21 89,29 171,70 Kísilvegur 69 km 15.827 € 34.291 € 65.944 € Reykjadalsvegur 92km 7.034 € 15.240 € 29.308 € Total trucking 22.861 € 49.531 € 95.253 €

Phase 1 Phase 2 Phase 3 Glycol 29,10 63,05 121,25 Kísilvegur 69 km 11.176 € 24.215 € 46.567 € Reykjadalsvegur 92km 4.967 € 10.762 € 20.696 € Total trucking 16.143 € 34.977 € 67.263 €

Phase 1 Phase 2 Phase 3 Alcohols 0,90 1,95 3,75 Kísilvegur 69 km 346 € 749 € 1.440 € Reykjadalsvegur 92km 154 € 333 € 640 € Total trucking 499 € 1.082 € 2.080 €

This is between 10% and 20 % increase in cost of transport comparing with other locations and does make AGC more dependent on other companies in the transportation industry.

Table 35 Shows estimated profit and loss from Bjarnarflag project

EUR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total sales - CIF: 33.105.000 33.105.000 71.727.500 71.727.500 137.937.500 137.937.500

Marketing cost: 1.324.200 1.324.200 2.869.100 2.869.100 5.517.500 5.517.500

Total sales, net 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Variable cost:

Cost of raw material: 11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923

Sea freight cost: 1.701.191 1.701.191 2.948.731 2.948.731 4.961.807 4.532.548

Product trucking cost: 559.267 559.267 1.211.744 1.211.744 2.330.277 2.330.277 Electrical cost: 225.262 225.262 1.630.286 1.630.286 5.394.834 5.394.834

Hydrogen cost 470.610 470.610 1.411.830 1.411.830 3.294.270 3.294.270

Thermal energy cost: 144.307 144.307 432.920 432.920 1.010.148 1.010.148

Catalyst cost 1.648.352 1.648.352 3.571.429 3.571.429 6.868.132 6.868.132

Royalty: 317.808 317.808 688.584 688.584 1.324.200 1.324.200

16.605.257 16.605.257 36.895.524 36.895.524 73.260.590 72.831.332

50% 50% 51% 51% 53% 53%

Fixed cost:

Salaries and wages 722.775 722.775 1.001.625 1.001.625 1.252.425 1.252.425

Maintenance 611.430 611.430 1.251.430 1.251.430 1.967.430 1.967.430

Insurance 114.643 114.643 234.643 234.643 368.893 368.893

Storage Tank Rental 432.000 432.000 432.000 432.000 432.000 432.000

Other fixed cost 390.255 390.255 612.335 612.335 870.945 870.945

2.271.103 2.271.103 3.532.033 3.532.033 4.891.693 4.891.693

Total costs 18.876.360 18.876.360 40.427.557 40.427.557 78.152.283 77.723.025

7% 7% 5% 5% 4% 4%

EBITDA: 12.904.440 12.904.440 28.430.843 28.430.843 54.267.717 54.696.975

39% 39% 40% 40% 39% 40%

Depreciation 2.132.160 2.132.160 4.363.949 4.363.949 6.860.762 6.860.762

6% 6% 6% 6% 5% 5%

Financial items: -161.721 80.033 -395.900 204.461 66.442 1.218.978

Profit before tax: 10.610.558 10.852.312 23.670.994 24.271.355 47.473.397 49.055.191

Used deployment cost against taxes/ rapid depreciation

32% 33% 33% 34% 34% 36%

Corporate tax (20%): 20% 530.528 868.185 1.893.680 2.427.135 4.747.340 4.905.519

Profit/loss: 10.080.030 9.984.127 21.777.315 21.844.219 42.726.057 44.149.672

30% 30% 30% 30% 31% 32%

ROS 31,72% 31,42% 31,63% 31,72% 32,27% 33,34%

The Bjarnarflag project looks promising and offers good profit the first 6 years of operations.

Profitability analyses The Bjarnarflag project is using the discount factor of 15% in expected return of net present value (NPV), which gives us EUR 96.921.861 million over 10 years period and internal rate of return (IRR) of 98,4%.

Table 36 Shows estimated IRR and NPV from Bjarnarflag project

0-1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Revenue: 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Operational Cost: 18.876.360 18.876.360 40.427.557 40.427.557 78.152.283 77.723.025

Share capital: 1000000 12.464.316 12.464.316 15.664.316 15.664.316 19.244.316 19.244.316 19.244.316

Investment: -1000000 -15.285.755 -16.000.000 -17.900.000

Loan capital: 3.821.439 12.800.000 14.320.000

Operational Capital Need 100000 100.000

New Equity needed -1000000 -11.364.316 0 -3.200.000 0 -3.580.000 0 0

Income: 26.484.000 31.780.800 62.678.800 68.858.400 121.826.400 132.420.000

Operational cost: 900000 -17.303.330 -18.876.360 -38.631.624 -40.427.557 -75.008.556 -77.758.797

Cash Flow from Operations 900000 9.180.670 12.904.440 24.047.176 28.430.843 46.817.844 54.661.203

Equity Inflow : -1000000 -11.364.316 -3.200.000 -3.580.000

Principal Payment of loans: 0 -509.091 -509.091 -2.214.302 -2.214.302 -4.122.008 -4.122.008

Financial items: 0 -161.721 80.033 -395.900 204.461 66.442 1.218.978

Corporate tax: -530.528 -868.185 -1.893.680 -2.427.135 -4.747.340

Free Cash flow to equity -1000000 -11.364.316 8.509.858 8.744.854 20.568.789 20.947.322 40.335.143 47.010.834

280

IRR 98,4%

NPV 96.921.861 15%

Cash at beginning of period 100.000 100.000 8.609.858 20.554.712 41.123.500 65.650.822 105.985.965

Cast at end of period 100.000 8.609.858 20.554.712 41.123.500 65.650.822 105.985.965 152.996.798

Interest income: 89.566 299.909 634.258 1.097.996 1.764.998 2.663.206

Interest paid on long term loans: -251.287 -219.876 -1.030.158 -893.535 -1.698.556 -1.444.228

Finical items - total: -161.721 80.033 -395.900 204.461 66.442 1.218.978

8. Djúpivogur Djúpivogur is an old fishing and merchant town on the east coast in Iceland. This town has always been a relatively small town with the population around 447 the 1st of December 2010 (SIS, 2011) if we compare them to the neighboring towns such as Höfn í Hornafirði or Eskifjörður, but it´s inhabitants have been resourceful by convening trading and fishing industry over the years. Service sector is growing mainly due to increasing tourism over the past few years (Djúpavogshreppur, 2011). Over the years the town has seen the fishing quota been sold out of the municipality do to various economic factors. There is an opportunity to take advantages of the situation as buildings and tanks that are not in use there are available at Djúpivogur and the municipality would welcome new business to the region. One of the problems in connection with selecting Djúpivogur is the lack of skilled work force and it would probably be problematic to secure highly educated work force in upper management that a factory of this caliber needs.

Harbor facility: There are two piers in Djúpavogur (Djúpavogshreppur, 2011):

Djúpavogshöfn – Length of pier is 80 meters and maximum length of overall allowed ship is 120 meters. Depth is 5, 5 meters. Distance from centrum of Djúpivogur is 300 meters.

Gleðivík – Length of pier is 75 meters and maximum length of overall allowed ship is 110 meters. Distance from centrum of Djúpivogur is 1 kilometer.

Roads

Djúpivogur is very close to the highway and the distance to Höfn the next populated area is 103 kilometers and to Breiðdalsvík is 64 kilometers. There is little use of the highway as the harbor is within 300 meters distance from the factory.

Investment in Djúpivogur There are many advantages to build AGC factory at Djúpivogur. One of them is availability of buildings and tanks that can easily be changed into a fully operational factory. Available buildings and tanks do make this opportunity more feasible, but with no available steam or

59 hydrogen at our disposal the investment does require additional investment of steam boiler and there is need for one additional tank of 5000m3 for storage. Building AGC factory at Djúpivogur the capital investment cost is expected around EUR 18.105 million as shown below by using IPD estimated building needs.

Table 37 Shows AGC investment estimate at Djúpivogur - phase 1, 2 and 3:

Phase 1 - 30.000 tons capacity: Euro Depreciation Steam boiler 2.188.679 12% 10,0% Connector to Landsnet 748.428 4% 10,0% Design, engineering, construction management: 1.000.000 6% 10,0% Land, building and premises: 400.000 2% 3,0% Storage tanks: 1.268.664 7% 10,0% Hydrogen electrolyser: 3.000.000 17% 12,5% Evaporators and distillation: 3.800.000 21% 10,0% Other fixtures and fittings: 3.200.000 18% 10,0% Contingency: 2.500.000 14% 10,0% Total: -10 % /+35% accuracy 18.105.771 100% 1.857.577 annually Year 0-2 Phase 2 - 35.000 tons capacity: Total investment: -10 % /+35% accuracy 15.000.000 10,3% Year 3-4 Phase 3 - 60.000 tons capacity: Total investment: -15/+-50 % accuracy 21.900.000 10,3% Year 5-6

As seen in the table below the investment is high in the first phase, estimated EUR 18.105 million and the need equity is EUR 13.579 million and loan capital EUR 4.526 million.

Table 38 Shows IPD estimated investment, equity and loan capital structure at Djúpivogur

Investment Equity Loan capital Euro % Euro % Euro Phase 1 18.105.771 100% 13.579.328 25% 4.526.443 Phase 2 15.000.000 100% 3.000.000 80% 12.000.000 Phase 3 21.900.000 100% 4.380.000 80% 17.520.000

Pro forma financials In table 39 below are major assumptions that are made for this profitability analysis.

Table 39 Shows financial assumptions in the Djúpivogur project

Parameter Units Phase 1 Phase 2 Phase 3 Electrical cost Euro/KWh 0,023 0,023 0,023 Cost of steam equivalent Euro/ton 15 15 15 Crude Glycerin Euro/ton 280 280 280 Propylene glycol Euro/ton 1150 1150 1150 Ethylene glycol Euro/ton 850 850 850 Ethanol Euro/ton 700 700 700 Methanol Euro/ton 700 700 700

The main problem which our project in Djúpivogur is facing is the lack of steam and/or hydrogen, which makes all processes rely totally on electricity. At Djúpivogur AGC factory would have to use electricity to produce steam at the cost of 15 EUR per ton.

Table 40 Shows estimated power consumption at G2G factory

Phase 1 Phase 2 Phase 3 Total Transmission cost 330.968 455.781 872.533 1.659.283 Electrical consumption- full capacity: kW 6.180 12.360 24.720 43.260 Number of hours: 8.300 8.300 8.300 Gigawatthours: 51,3 102,6 205,2 359,1 Electrical cost -Euro/kWh 0,02 0,02 0,02 Total cost at full capacity: Euro 1.510.730 2.815.305 5.591.581 9.917.617

Thermal power consumption: kW 8.500 17.000 34.000 59.500 Converted to steam equiv. (t/h, 12 bar): t/h 14 28 56 97 Operating hours per year: 8.300 8.300 8.300 Cost of steam equivalent: Euro pr ton 15 15 15 Total thermal power cost at full capacity: Euro 1.731.682 3.463.364 6.926.727 12.121.773

Tank storage rental (Euro Per Year) 200.000 200.000 200.000

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

In Djúpivogur the energy cost is estimated around 9% of portion of sales in the first phase and will rise to 12% in the second phase and finally will be around 14% when it reaches the third phase of the project.

Table 41 Shows profit and loss during 6 years period expected

EUR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total sales - CIF: 33.105.000 33.105.000 71.727.500 71.727.500 137.937.500 137.937.500

Marketing cost: 1.324.200 1.324.200 2.869.100 2.869.100 5.517.500 5.517.500

Total sales, net 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Variable cost:

Cost of raw material: 11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923

Sea freight cost: 1.701.191 1.701.191 2.948.731 2.948.731 4.961.807 4.532.548

Product trucking cost: 207.821 207.821 450.279 450.279 865.922 865.922 Electrical cost: 1.510.730 1.510.730 4.326.035 4.326.035 9.917.617 9.917.617

Thermal energy cost: 1.731.682 1.731.682 5.195.045 5.195.045 12.121.773 12.121.773

Catalyst cost 1.648.352 1.648.352 3.571.429 3.571.429 6.868.132 6.868.132

Royalty: 317.808 317.808 688.584 688.584 1.324.200 1.324.200

18.656.045 18.656.045 42.180.104 42.180.104 84.136.373 83.707.115

56% 56% 59% 59% 61% 61%

Fixed cost:

Salaries and wages 722.775 722.775 1.001.625 1.001.625 1.252.425 1.252.425

Maintenance 724.231 724.231 1.324.231 1.324.231 2.200.231 2.200.231

Insurance 135.793 135.793 248.293 248.293 412.543 412.543

Storage Tank Rental 200.000 200.000 300.000 300.000 600.000 600.000

Other fixed cost 417.045 417.045 629.625 629.625 926.235 926.235

2.199.844 2.199.844 3.503.774 3.503.774 5.391.434 5.391.434

Total costs 20.855.889 20.855.889 45.683.877 45.683.877 89.527.807 89.098.549

7% 7% 5% 5% 4% 4%

EBITDA: 10.924.911 10.924.911 23.174.523 23.174.523 42.892.193 43.321.451

33% 33% 32% 32% 31% 31%

Depreciation 1.857.577 1.857.577 3.396.515 3.396.515 5.643.364 5.643.364

6% 6% 5% 5% 4% 4%

Financial items: -228.391 -22.621 -512.445 -16.259 -535.591 406.402

Profit before tax: 8.838.942 9.044.713 19.265.562 19.761.749 36.713.238 38.084.489

Used deployment cost against taxes/ rapid depreciation

27% 27% 27% 28% 27% 28%

Corporate tax (20%): 20% 441.947 723.577 1.541.245 1.976.175 3.671.324 3.808.449

Profit/loss: 8.396.995 8.321.136 17.724.317 17.785.574 33.041.914 34.276.040

25% 25% 25% 25% 24% 25%

ROS 26,42% 26,18% 25,74% 25,83% 24,95% 25,88%

Profitability analyses In the Djúpavogur project we are using the discount factor of 15% in expected return of net present value (NPV), which gives us EUR 68.844.894 million over 10 years period and internal rate of return (IRR) of 74,3%.

Table 42 Shows estimated IRR and NPV from Djúpavogur project

0-1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Revenue: 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000

Operational Cost: 20.855.889 20.855.889 45.683.877 45.683.877 89.527.807 89.098.549

Share capital: 1000000 14.579.328 14.579.328 17.579.328 17.579.328 17.579.328 17.579.328 17.579.328

Investment: -1000000 -18.105.771 -15.000.000 -21.900.000

Loan capital: 4.526.443 12.000.000 17.520.000

Operational Capital Need 100000 100.000

New Equity needed -1000000 -13.479.328 0 -3.000.000 0 -4.380.000 0 0

Income: 26.484.000 31.780.800 62.678.800 68.858.400 121.826.400 132.420.000

Operational cost: 900000 -19.117.899 -20.855.889 -43.614.878 -45.683.877 -85.874.146 -89.134.320

Cash Flow from Operations 900000 7.366.101 10.924.911 19.063.922 23.174.523 35.952.254 43.285.680

Equity Inflow : -1000000 -13.479.328 -3.000.000 -4.380.000

Principal Payment of loans: 0 -603.011 -603.011 -2.201.647 -2.201.647 -4.535.655 -4.535.655

Financial items: 0 -228.391 -22.621 -512.445 -16.259 -535.591 406.402

Corporate tax: -441.947 -723.577 -1.541.245 -1.976.175 -3.671.324

Free Cash flow to equity -1000000 -13.479.328 6.534.699 6.857.332 15.626.252 15.035.372 28.904.833 35.485.103

280

IRR 74,3%

NPV 68.844.894 15%

Cash at beginning of period 100.000 100.000 6.634.699 16.492.031 32.118.283 51.533.655 80.438.488

Cast at end of period 100.000 6.634.699 16.492.031 32.118.283 51.533.655 80.438.488 115.923.590

Interest income: 69.255 237.820 499.876 860.221 1.357.114 2.019.257

Interest paid on long term loans: -297.646 -260.441 -1.012.321 -876.480 -1.892.705 -1.612.855

Finical items - total: -228.391 -22.621 -512.445 -16.259 -535.591 406.402

9. Conclusions The purpose this analysis was to determine if a business opportunity is possible, in fact practical and viable. In this study steps were taken to make this approach as to make a realistic looking as possible, and have tried to take in both positive and negative aspects of the business opportunity. Four cases were constructed, studied and evaluated: Helguvík Harbor, Grundartangi, Djúpivogur and Husavik/Bjarnarflag. Each location has a harbor that can accommodate at least 10.000Ton transport vessel.

Even though all sites obviously yield acceptable outcomes, one shall keep in mind the accuracy of this study is -10% and + 35%. More studies, bids and calculations are clearly needed to tighten the outcome accuracy figures. Confirmed bids and detailed estimates will have to be conducted and analyses.

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Appendix – Helguvík

Fundamentals 1) Project timeline - capacity - investment:

2) G2G - Raw material usage/Product(s) distribution

Distrib. Phase 1 Phase 2 Phase 3 Total Raw material / products weight MT/year MT/year MT/year MT/year

Production capacity 30.000 35.000 60.000 125.000

Crude Glycerin (crude 80%) 41.209 48.077 82.418 171.703 Net feedstock Glycerin (100 %) 32.967 38.462 65.934 137.363

Methane 1,5 % of feed Glycerin 495 577 989 2.060 Methanol 2,0% 600 700 1.200 2.500 Ethanol propanol 1,0% 300 350 600 1.250 Total Alcohols. 3,0% 900 1.050 1.800 3.750

Propylene glycol 86,0% 25.800 30.100 51.600 107.500 Ethylene glycol 11,0% 3.300 3.850 6.600 13.750 Total liquid Products. 100,0% 30.000 35.000 60.000 125.000

Total liquid products - excluding methane: 30.000 35.000 60.000 125.000

3) Estimated product price and raw material price - based on prices in September 2010.

Euro/ton Chemicals: Price Tons/a Phase 1 Phase 2 Phase 3 Total Total value in Euro Raw materials Crude Glycerin (80 %), ex-factory 280 NW-Europe 11.538.462 13.461.538 23.076.923 48.076.923

Glycols Propylene glycol 1.150 NW-Europe 29.670.000 34.615.000 59.340.000 123.625.000 Ethylene glycol 850 NW-Europe 2.805.000 3.272.500 5.610.000 11.687.500 1.303 1083 32.475.000 37.887.500 64.950.000 135.312.500 Alcohols Ethanol 700 NW-Europe 210.000 245.000 420.000 875.000 Methanol 700 NW-Europe 420.000 490.000 840.000 1.750.000 700 630.000 735.000 1.260.000 2.625.000 Gas Methane (0,714 kg/Nm3) 400 NW-Europe 197.802 230.769 395.604 824.176

Total - without methane: 33.105.000 38.622.500 66.210.000 137.937.500 Total - average price pr MT 1.104 1.104 1.104 1.104 Total revenue - with methane 33.302.802 38.853.269 66.605.604 138.761.676

4) Freight cost - logistics:

Description Euro/MT NW-Europe-Iceland, liquid cargo 25 Sea freight is very sensitive Trucking - factory to harbor - liquid cargo 7,42 to size. 15 Euro/MT Trucking & Storage factory to depot - alcohols 16,5 for 15.000 t lots and Piping- factory to depot - methane 40 50 Euro/MT for 1.250 t lots.

5) Currency rates ISK to:

USD 116 EUR 159 GBP 183 NKR 21

6) Investment estimate - phase 1, 2 and 3:

7) Power consumption:

Thermal power consumption: kW 8.500 17.000 34.000 59.500 Converted to steam equiv. (t/h, 12 bar): t/h 14 28 56 97 Operating hours per year: 8.300 8.300 8.300 Cost of steam equivalent: Euro pr ton 4 4 4 Total thermal power cost at full capacity: Euro 461.782 923.564 1.847.127 3.232.473

Tank storage rental (Euro Per Year) 120.000 240.000 480.000 840.000

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

8) Employment - phase 1 + additional workers for expanding to phase 2 and 3:

Unit cost Phase 1 Phase 2 Phase 3 Description pr year Number Euro Number Euro Number Euro Mgn. Director 58.125 1 58.125 Production Dir. 55.350 1 55.350 Laboratory Dir. 49.050 1 49.050 Line staff 24.900 12 298.800 4 99.600 4 99.600 Maintenance 41.250 2 82.500 1 41.250 2 82.500 Quality assurance 40.950 2 81.900 1 40.950 1 40.950 Office workers 41.550 1 41.550 1 41.550 0 Various 27.750 2 55.500 2 55.500 1 27.750 Total: 22 722.775 9 278.850 8 250.800

Phase 2 - total staff and cost: 31 1.001.625

Phase 3 - total staff and cost: 39 1.252.425

9) Marketing cost, license fee and cost of catalyst:

Description Phase 1 Phase 2 Phase 3 Total

Marketing cost: 4,0% of sales: 1.332.112 1.554.131 2.664.224 5.412.500

Royalty: 1% of sales 1% Euro per t product.: 331.050 386.225 662.100 1.379.375 Catalyst cost 40 Euro per t product.: 1.200.000 1.400.000 2.400.000 5.000.000

10) Various fixed cost:

Phase 1 Phase 2 Phase 3 Total Maintenance: 4,0% of investment: 714.057 600.000 796.000 2.110.057 Insurance: 0,75% of investment: 133.886 112.500 149.250 395.636 Travels - staff: 7000 Euro per person 28.000 7.000 7.000 42.000 Telephone: 400 Euro per person 8.800 3.600 3.200 15.600 IT system: 1700 Euro per person 37.400 15.300 13.600 66.300 Security: Estimate 60.000 15.000 15.000 90.000 Auditing and consulting: Estimate 70.000 17.500 35.000 122.500 Various cost: Estimate 210.429 154.180 203.810 568.419 Total - various fixed cost: 1.262.571 925.080 1.222.860 3.410.511 Percentage of total sales: 3,8% 2,4% 1,8% 2,5%

11) Transmission cost from Landsnet

Phase 1 Phase 2 Phase 3 Tariff Tariff Tariff Delivery Charge 39.029 € €/ year 39.029 € 39.029 € 39.029 € Capacity charge 20.650 € €/MW 127.618 € 255.236 € 510.473 € Energy charge 1,045 € €/MWh 53.588 € 107.177 € 214.353 € Ancillary services 0,162 € €/MWh 8.297 € 16.595 € 33.189 € Transmission losses 0,368 € €/MWh 18.872 € 37.745 € 75.489 € Total 247.405 € 455.781 € 872.533 €

12) Model to calculate strain

Startup cost 1.273.835 € Percent per year 0,08 Portion of startup cost 0,80 MWh 51.294 € Energy charge 1,04 € MW 6,18 Capacity charge 20.650 € Surcharge 46,12%

13) Model to calculate Landsnet tariff with strain

Usages Load capacity 6,18 MW Energy 51.294 MWh Utilization 8.300 hrs. ISK/EUR 159,00 kr.

Additional fee Delivery charge 0 EUR Capacity charge 58.851 EUR Energy charge 24.712 EUR Total for transmission 83.564 EUR

Total tariff Delivery charge 39.029 EUR Capacity charge 186.469 EUR Energy charge 78.301 EUR Ancillary services 8.297 EUR Transmission losses 18.872 EUR Total for transmission 330.968 EUR

Profit and loss Sales, freight cost and marketing cost in €uro

Description: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

i) Glycols: Phase 1: 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000

Phase 2: 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500

Phase 3: 64.950.000 64.950.000 64.950.000 64.950.000 64.950.000 64.950.000

32.475.000 32.475.000 70.362.500 70.362.500 135.312.500 135.312.500 135.312.500 135.312.500 135.312.500 135.312.500

Product:

Glycols - sea freight: 623.081 623.081 1.080.008 1.080.008 1.817.321 1.817.321 1.817.321 1.817.321 1.817.321 1.817.321

Glycols - trucking: 184.931 184.931 400.683 400.683 770.544 770.544 770.544 770.544 770.544 770.544

ii) Alcohols: Phase 1 630.000 630.000 630.000 630.000 630.000 630.000 630.000 630.000 630.000 630.000

Phase 2 735.000 735.000 735.000 735.000 735.000 735.000 735.000 735.000

Phase 3 1.260.000 1.260.000 1.260.000 1.260.000 1.260.000 1.260.000

630.000 630.000 1.365.000 1.365.000 2.625.000 2.625.000 2.625.000 2.625.000 2.625.000 2.625.000

Alcohols - trucking: 14.850 14.850 32.175 32.175 61.875 61.875 61.875 61.875 61.875 61.875

Total sales 33.105.000 33.105.000 71.727.500 71.727.500 137.937.500 137.937.500 137.937.500 137.937.500 137.937.500 137.937.500

iii) Glycerin: Phase 1 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462 11.538.462

Feedstock Phase 2 13.461.538 13.461.538 13.461.538 13.461.538 13.461.538 13.461.538 13.461.538 13.461.538

Phase 3 23.076.923 23.076.923 23.076.923 23.076.923 23.076.923 23.076.923

11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923 48.076.923 48.076.923 48.076.923 48.076.923

35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

Crude Glycerin – sea freight: 1.030.220 1.030.220 1.785.714 1.785.714 3.004.808 2.575.549 2.575.549 2.575.549 2.575.549 2.575.549

iv) Sea freight - total: 1.653.301 1.653.301 2.865.722 2.865.722 4.822.128 4.392.870 4.392.870 4.392.870 4.392.870 4.392.870

Trucking - total: 199.781 199.781 432.858 432.858 832.419 832.419 832.419 832.419 832.419 832.419

Tank storage rental 120.000 120.000 240.000 240.000 480.000 480.000 480.000 480.000 480.000 480.000

Total freight and storage cost: 1.973.082 1.973.082 3.538.580 3.538.580 6.134.547 5.705.289 5.705.289 5.705.289 5.705.289 5.705.289

Energy cost v) Electricity: Phase 1 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730 1.510.730

Phase 2 2.815.305 2.815.305 2.815.305 2.815.305 2.815.305 2.815.305 2.815.305 2.815.305

Phase 3 5.591.581 5.591.581 5.591.581 5.591.581 5.591.581 5.591.581

1.510.730 1.510.730 4.326.035 4.326.035 9.917.617 9.917.617 9.917.617 9.917.617 9.917.617 9.917.617

vi) Thermal energy: Phase 1 461.782 461.782 461.782 461.782 461.782 461.782 461.782 461.782 461.782 461.782

Phase 2 923.564 923.564 923.564 923.564 923.564 923.564 923.564 923.564

Phase 3 1.847.127 1.847.127 1.847.127 1.847.127 1.847.127 1.847.127

461.782 461.782 1.385.345 1.385.345 3.232.473 3.232.473 3.232.473 3.232.473 3.232.473 3.232.473

vii) Total energy cost: 1.972.512 1.972.512 5.711.381 5.711.381 13.150.089 13.150.089 13.150.089 13.150.089 13.150.089 13.150.089 Proportion of sales: 6% 6% 8% 8% 10% 10% 10% 10% 10% 10%

Estimated profit and loss account:

EUR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Total sales - CIF: 33.105.00033.105.000 71.727.500 71.727.500 137.937.500 137.937.500 137.937.500 137.937.500 137.937.500 137.937.500

Marketing cost: 1.324.200 1.324.200 2.869.100 2.869.100 5.517.500 5.517.500 5.517.500 5.517.500 5.517.500 5.517.500

Total sales, net 31.780.80031.780.800 68.858.400 68.858.400 132.420.000 132.420.000 132.420.000 132.420.000 132.420.000 132.420.000

Variable cost:

Cost of raw material: 11.538.462 11.538.462 25.000.000 25.000.000 48.076.923 48.076.923 48.076.923 48.076.923 48.076.923 48.076.923

Sea freight cost: 1.653.301 1.653.301 2.865.722 2.865.722 4.822.128 4.392.870 4.392.870 4.392.870 4.392.870 4.392.870

Product trucking cost: 199.781 199.781 432.858 432.858 832.419 832.419 832.419 832.419 832.419 832.419

Electrical cost: 1.510.730 1.510.730 4.326.035 4.326.035 9.917.617 9.917.617 9.917.617 9.917.617 9.917.617 9.917.617

Thermal energy cost: 461.782 461.782 1.385.345 1.385.345 3.232.473 3.232.473 3.232.473 3.232.473 3.232.473 3.232.473

Catalyst cost 1.648.352 1.648.352 3.571.429 3.571.429 6.868.132 6.868.132 6.868.132 6.868.132 6.868.132 6.868.132

Royalty: 317.808 317.808 688.584 688.584 1.324.200 1.324.200 1.324.200 1.324.200 1.324.200 1.324.200

17.330.215 17.330.215 38.269.973 38.269.973 75.073.892 74.644.633 74.644.633 74.644.633 74.644.633 74.644.633

52% 52% 53% 53% 54% 54% 54% 54% 54% 54%

Fixed cost:

Salaries and wages 722.775 722.775 1.001.625 1.001.625 1.252.425 1.252.425 1.252.425 1.252.425 1.252.425 1.252.425

Maintenance 714.057 714.057 1.314.057 1.314.057 2.110.057 2.110.057 2.110.057 2.110.057 2.110.057 2.110.057

Insurance 133.886 133.886 246.386 246.386 395.636 395.636 395.636 395.636 395.636 395.636

Storage Tank Rental 120.000 120.000 240.000 240.000 480.000 480.000 480.000 480.000 480.000 480.000

Other fixed cost 414.629 414.629 627.209 627.209 904.819 904.819 904.819 904.819 904.819 904.819

2.105.346 2.105.346 3.429.276 3.429.276 5.142.936 5.142.936 5.142.936 5.142.936 5.142.936 5.142.936

Total costs 19.435.561 19.435.561 41.699.249 41.699.249 80.216.828 79.787.569 79.787.569 79.787.569 79.787.569 79.787.569

6% 6% 5% 5% 4% 4% 4% 4% 4% 4%

EBITDA: 12.345.23912.345.239 27.159.151 27.159.151 52.203.172 52.632.431 52.632.431 52.632.431 52.632.431 52.632.431

37% 37% 38% 38% 38% 38% 38% 38% 38% 38%

Depreciation 1.701.300 1.701.300 3.130.849 3.130.849 5.027.385 5.027.385 5.027.385 5.027.385 5.027.385 5.027.385

5% 5% 4% 4% 4% 4% 4% 4% 4% 4%

Financial items: -210.551 22.695 -414.778 158.705 -123.504 991.375 2.185.239 3.396.265 4.625.537 5.841.251

Profit before tax: 10.433.389 10.666.635 23.613.524 24.187.007 47.052.284 48.596.421 49.790.285 51.001.311 52.230.583 53.446.297

Used deployment cost against taxes/ rapid depreciation

32% 32% 33% 34% 34% 35% 36% 37% 38% 39%

Corporate tax (20%): 20% 521.669 853.331 1.889.082 2.418.701 4.705.228 4.859.642 5.476.931 6.120.157 6.267.670 7.482.482

Profit/loss: 9.911.719 9.813.30421.724.442 21.768.306 42.347.055 43.736.779 44.313.353 44.881.154 45.962.913 45.963.816

30% 30% 30% 30% 31% 32% 32% 33% 33% 33%

ROS 31,2% 30,9% 31,5% 31,6% 32,0% 33,0% 33,5% 33,9% 34,7% 34,7%

Cash flow and equity

The following cash flow is based on the following assumptions:

Investment Equity Loan capital Euro % Euro % Euro Phase 1 17.851.423 100% 13.388.567 25% 4.462.856 Phase 2 15.000.000 100% 3.000.000 80% 12.000.000 Phase 3 19.900.000 100% 3.980.000 80% 15.920.000

Interest rate:

Euro loans: Libor: 0,17% Premium: 6,00% Total: 6,17% Euro deposits: Total: 2,06%

Income:

Estimated length of time of receivables: 2 months 16,67% of the annual income

Cost:

Estimated length of time of payables: 1 months 8,33% of the annual cost 8 years

Year Beginning of 0 1 2 3 4 5 6 7 8 9 10

Loan 1+first year interest 4.756.321

Principal -594.540 -594.540 -594.540 -594.540 -594.540 -594.540 -594.540 -594.540

Interests: -293.465 -256.782 -220.099 -183.416 -146.732 -110.049 -73.366 -36.683

Loan 2 + first year interest 12.789.087

Principal -1.598.636 -1.598.636 -1.598.636 -1.598.636 -1.598.636 -1.598.636 -1.598.636 -1.598.636

Interests: -789.087 -690.451 -591.815 -493.179 -394.543 -295.907 -197.272 -98.636

Loan 3 + first year interest 16.966.855

Principal -2.120.857 -2.120.857 -2.120.857 -2.120.857 -2.120.857 -2.120.857

Interest: -1.046.855 -915.998 -785.141 -654.284 -523.427 -392.571

* Loans are paid out at the beginning of the year and accrue interest that year.

Atlantic Green Chemicals - Glycerin to glycols - G2G

0-1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue: 31.780.800 31.780.800 68.858.400 68.858.400 132.420.000 132.420.000 132.420.000 132.420.000 132.420.000 132.420.000

Operational Cost: 19.435.561 19.435.561 41.699.249 41.699.249 80.216.828 79.787.569 79.787.569 79.787.569 79.787.569 79.787.569

Share capital: 1000000 14.388.567 14.388.567 17.388.567 17.388.567 21.368.567 21.368.567 21.368.567 21.368.567 21.368.567 21.368.567 21.368.567

Investment: -1000000 -17.851.423 -15.000.000 -19.900.000

Loan capital: 4.462.856 12.000.000 15.920.000

Operational Capital Need 100000 100.000

New Equity needed -1000000 -13.288.567 0 -3.000.000 0 -3.980.000 0 0 0 0 0 0

Income: 26.484.000 31.780.800 62.678.800 68.858.400 121.826.400 132.420.000 132.420.000 132.420.000 132.420.000 132.420.000

Operational cost: 900000 -17.815.931 -19.435.561 -39.843.942 -41.699.249 -77.007.029 -79.823.341 -79.787.569 -79.787.569 -79.787.569 -79.787.569

Cash Flow from Operations 900000 8.668.069 12.345.239 22.834.858 27.159.151 44.819.371 52.596.659 52.632.431 52.632.431 52.632.431 52.632.431

Equity Inflow : -1000000 -13.288.567 -3.000.000 -3.980.000

Principal Payment of loans: 0 -594.540 -594.540 -2.193.176 -2.193.176 -4.314.033 -4.314.033 -4.314.033 -4.314.033 -3.719.493 -3.719.493

Financial items: 0 -210.551 22.695 -414.778 158.705 -123.504 991.375 2.185.239 3.396.265 4.625.537 5.841.251

Corporate tax: -521.669 -853.331 -1.889.082 -2.418.701 -4.705.228 -4.859.642 -5.476.931 -6.120.157 -6.267.670

Free Cash flow to equity -1000000 -13.288.567 7.862.978 8.251.725 19.373.573 19.255.598 37.963.133 44.568.773 45.643.995 46.237.732 47.418.318 48.486.519

280

IRR 86,2%

NPV 89.427.385 15%

Cash at beginning of period 100.000 100.000 7.962.978 19.214.703 38.588.276 61.823.874 99.787.008 144.355.781 189.999.775 236.237.507 283.655.824

Cast at end of period 100.000 7.962.978 19.214.703 38.588.276 61.823.874 99.787.008 144.355.781 189.999.775 236.237.507 283.655.824 332.142.344

Interest income: 82.914 279.477 594.407 1.032.572 1.661.899 2.510.602 3.438.290 4.383.140 5.346.236 6.332.458

Interest paid on long term loans: -293.465 -256.782 -1.009.185 -873.866 -1.785.402 -1.519.227 -1.253.051 -986.875 -720.699 -491.206

Finical items - total: -210.551 22.695 -414.778 158.705 -123.504 991.375 2.185.239 3.396.265 4.625.537 5.841.251

Tanks building estimates Tank building estimates

Tank construction 2500m3 212.068 € Sump and sewage system, filling station, fences 95.932 € Piping to outer harbor 39.426 € Fire extinguishing system with foam for methanol 93.029 € Pumping system with a control house 36.439 € Scada system 37.834 € Miscellaneous and contingency 85.841 € Design management 33.764 € Total 634.332 €

Tank construction 1000m3 84.827 € Sump and sewage system, filling station, fences 38.373 € Piping to outer harbor 15.770 € Fire extinguishing system with foam for methanol 37.212 € Pumping system with a control house 14.575 € Scada system 15.134 € Miscellaneous and contingency 34.336 € Design management 13.506 € Total 253.733 €

Tank construction 4000m3 339.308 € Sump and sewage system, filling station, fences 153.491 € Piping to outer harbor 63.082 € Fire extinguishing system with foam for methanol 148.846 € Pumping system with a control house 58.302 € Scada system 60.535 € Miscellaneous and contingency 137.345 € Design management 54.022 € Total 1.014.931 €

Appendix – Grundartangi

Fundamentals 1) Project timeline - capacity - investment:

Production capacity in tpa Year/description: Phase 1 Phase 2 Phase 3 Total (Feasibility study cost 1 M.euro) Investment - EURO: 15.866.354 13.000.000 17.900.000 46.766.354 Capacity - tons(products): 30.000 35.000 60.000 125.000

2) G2G - Raw material usage/Product(s) distribution Distrib. Phase 1 Phase 2 Phase 3 Total Raw material / products weight MT/year MT/year MT/year MT/year

Production capacity 30.000 35.000 60.000 125.000

Crude Glycerin (crude 80%) 41.209 48.077 82.418 171.703 Net feedstock Glycerin (100 %) 32.967 38.462 65.934 137.363

Methane 1,5 % of feed Glycerin 495 577 989 2.060 Methanol 2,0% 600 700 1.200 2.500 Ethanol propanol 1,0% 300 350 600 1.250 Total Alcohols. 3,0% 900 1.050 1.800 3.750

Propylene glycol 86,0% 25.800 30.100 51.600 107.500 Ethylene glycol 11,0% 3.300 3.850 6.600 13.750 Total liquid Products. 100,0% 30.000 35.000 60.000 125.000

Total liquid products - excluding methane: 30.000 35.000 60.000 125.000

3) Estimated product price and raw material price

Euro/ton Chemicals: Price Tons/a Phase 1 Phase 2 Phase 3 Total Total value in Euro Raw materials Crude Glycerin (80 %), ex-factory 280 NW-Europe 11.538.462 13.461.538 23.076.923 48.076.923

Glycols Propylene glycol 1.150 NW-Europe 29.670.000 34.615.000 59.340.000 123.625.000 Ethylene glycol 850 NW-Europe 2.805.000 3.272.500 5.610.000 11.687.500 1.210 1083 32.475.000 37.887.500 64.950.000 135.312.500 Alcohols Ethanol 700 NW-Europe 210.000 245.000 420.000 875.000 Methanol 700 NW-Europe 420.000 490.000 840.000 1.750.000 700 630.000 735.000 1.260.000 2.625.000 Gas Methane (0,714 kg/Nm3) 400 NW-Europe 197.802 230.769 395.604 824.176

Total - without methane: 33.105.000 38.622.500 66.210.000 137.937.500 Total - average price pr MT 1.104 1.104 1.104 1.104 Total revenue - with methane 33.302.802 38.853.269 66.605.604 138.761.676

4) Freight cost - logistics:

5) Currency rates (ISK to) used in this report

USD 116,0 EUR 159,0 GBP 183,0 NKR 21,00

6) Investment estimate - phase 1, 2 and 3:

7) Power consumption:

Tank storage rental (Euro Per Year) 0 0 0 0

Thermal power generated with electricity: Gigawatthours - efficiency 1,1 77,6 155,2 310,4 543,2

8) Employment - phase 1 + additional workers for expanding to phase 2 and 3:

Phase 2 - total staff and cost: 31 1.001.625

Phase 3 - total staff and cost: 39 1.252.425

9) Marketing cost, license fee and cost of catalyst:

Desription Phase 1 Phase 2 Phase 3 Total

Marketing cost: 4,0% of sales: 1.332.112 1.554.131 2.664.224 5.412.500

Royalty: 1% of sales 1% Euro per t product.: 331.050 386.225 662.100 1.379.375 Catalyst cost 40 Euro per t product.: 1.200.000 1.400.000 2.400.000 5.000.000

10) Various fixed cost:

Phase 1 Phase 2 Phase 3 Total

Maintenance: 4,0% of investment: 634.654 520.000 716.000 1.870.654 Insurance: 0,75% of investment: 118.998 97.500 134.250 350.748 Travels - staff: 7000 Euro per person 28.000 7.000 7.000 42.000 Telephone: 400 Euro per person 8.800 3.600 3.200 15.600 IT system: 1700 Euro per person 37.400 15.300 13.600 66.300 Security: estimate 60.000 15.000 15.000 90.000 Auditing and consulting: estimate 70.000 17.500 35.000 122.500 Various cost: estimate 191.570 135.180 184.810 511.560 Total - various fixed cost: 1.149.422 811.080 1.108.860 3.069.362 Percentage of total sales: 3,5% 2,1% 1,7% 2,2%

11) Transmission cost

Phase 1 Phase 2 Phase 3 Delivery Charge 12.521 €/year 12.521 12.521 12.521 Capacity charge 44,30 €/kw 52.276 104.552 209.105 Energy charge 8,62 €/kWh 84.389 168.777 337.554 Total 149.186 285.850 559.180

Profit and loss

Sales, freight cost and marketing cost in Euro:

Description: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 i) Glycols: Phase 1: 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000 32.475.000

Phase 2: 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500 37.887.500

Phase 3: 64.950.000 64.950.000 64.950.000 64.950.000 64.950.000 64.950.000

32.475.000 32.475.000 70.362.500 70.362.500 135.312.500 135.312.500 135.312.500 135.312.500 135.312.500 135.312.500

Product:

Glycols - sea freight: 670.971 670.971 1.163.017 1.163.017 1.956.999 1.956.999 1.956.999 1.956.999 1.956.999 1.956.999

Glycols - trucking: 199.144 199.144 431.479 431.479 829.768 829.768 829.768 829.768 829.768 829.768